Market Advisor

Q&A with Harlan Hughes

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Do you have a question or comment for Harlan Hughes? E-mail Harlan, and he'll respond as quickly as possible. If your letter seems of general interest, we may post it on this Web site, unless you request otherwise.

Cattle leasing
BEEF magazine received this letter in August 2001.

We're looking at leasing cattle in the Northwest. Do you have access to such information as the availability of cattle, the breeds that are available and the cost of getting started?

Harlan Hughes responds:

Leasing can be a win-win situation for both parties involved provided it's done right.

I don't keep a record of who has cows for lease and who wants to lease cows. I recommend you contact your local county Extension agent. They frequently hear of people wanting to lease cows.

In addition, contact agricultural loan officers in your region as they frequently know of people wanting to lease cows. I'd also encourage you to advertise in agricultural papers in your region. You will be surprised at who might respond.

You might find someone nearing retirement who wants to sell out but doesn't want to pay all the associated taxes. They frequently are interested in leasing cows and then collecting the cull cow income over several years, thus reducing the income tax consequences.

My “Market Advisor” article in this issue (page 8) is the third in a series on cow leasing. Refer to that series for some background on cow leasing and setting up an equitable cow lease.

I encourage you to look at Beef Magazine and search for my two previous “Market Advisor” articles on leasing — June BEEF, page 16; and July BEEF, page 10. You can also access older leasing publications of mine at www.ext.nodak.edu/extpubs/agecon/farmmgt/ec1086w.htm.

A sample lease is also available at www.ag.ndsu.nodak.edu/cow. Take the “new” option and you'll find the sample lease listed at or near the top. This same sample lease is available at www.beefeconomics.blogspot.com. Scroll down to the June 14 article. Note that the first article also relates to beef cow leasing.

Harlan Hughes


Grass-finishing advice
BEEF magazine received this letter in July 2001.

Could a U.S. cattle producer find a niche raising and finishing cattle on grass instead of producing a grain-finished, high-quality beef carcass?

I recently visited some grass finishing ranches in Hawaii. I realize there's a difference in the climate and grass between the West and Hawaii, but they are marketing grass-finished beef there. Would it be economically feasible on the mainland?

Keith T. Weber, webekeit@isu.edu

Harlan Hughes responds:

Your idea of producing grass-fed beef for the hamburger market is interesting. The challenge is to produce that grass-fed beef at a low enough cost.

Let's assume a retailer is selling hamburger for $1/lb. of processed weight. If we adjust that $1/lb. slaughter weight assuming a 61% dressing percentage that $1/lb. goes to 61¢/lb. of live weight. Cattle can be produced for that price, but you must consider wholesaling and retailing costs and margins.

For discussion, let's use 20¢/lb. as our wholesaling and retailing costs, and let's assume that the packer's slaughter and grinding costs are 15¢/lb. When we deduct these costs against our price received/processed pound ($0.35 ¥ 0.61 = $0.21), we drop the live animal price to 40¢/lb.

Can you produce grass-fed beef for 40¢/lb.? Perhaps, but only a thorough economic analysis of your costs will tell you for sure.

Harlan Hughes


Exports and imports
BEEF magazines received this question in April 2001.

I am a member of the South Dakota Stockgrowers Association, which recently disaffiliated from the National Cattlemen's Beef Association. Instead, the group aligned itself with R-CALF (Ranchers-Cattlemen Action Legal Fund), which was organized to fight imports of cattle into the U.S.

As I visit with people about this switch, a few questions always arise that I am unable to answer.

Why does the U.S. import cattle and beef from foreign countries? Is it because we are unable to fill existing markets with domestic beef?

What are the imports used for mainly? Are they used for low-cost beef products?

Do we want U.S. beef to be used for what the imports are used for? If yes, would it hurt our prices if U.S. beef were used for these purposes?

Kory M. Bierle, Midland, SD, kry@gwtc.net

Harlan Hughes responds:

I will answer your last question first. We generally import low-quality beef that goes to the variety meats, lunch meats, etc. We also import cow meat to be ground into hamburger meat. By doing that, we can divert our domestic beef to the higher priced export beef.

If we decided to meet all domestic beef demand with domestic production, we would have to divert much more of our high-quality beef to produce low-quality product. That would drag down average domestic cattle prices. We all gain by the substitution of low-quality imported beef for the export of our high-quality beef.

Understand that the size of the U.S. beef cow herd is 33 million beef cows. Canada has only 4.5 million beef cows. That's a ratio of 7 to 1. In fact, Texas has more beef cows than all of Canada.

Not all beef imports, however, are low quality. Some Canadian grain-fed beef comes in — especially out of Alberta. We also export some beef to Canada — particularly in the East where the majority of their population is.

Economic trade generally works best for countries that allow imports because then they get to export. If the U.S. were to shut off imports with trade restrictions, other countries would respond in kind.

We import more total pounds from all countries than we export, but the dollar value of what we export to all countries exceeds the dollar value of imports.

Since the trade blockade, we are exporting more feeder cattle to Canada. Most of the 2000 feeder calves that went north came from Montana, Idaho, North Dakota, etc. North Dakota cattlemen are closer to the Alberta feedlots than the Central Plains feedlots. It makes some sense for North Dakota feeder cattle to go into Alberta, but we have to really watch the Canadian dollar's value.

A big factor in the Canadian trade has been the reduced value of the Canadian dollar. Their cattle are priced right off of U.S. markets. In fact, Alberta feedlots will quote their prices as Nebraska direct slaughter price minus a $6-$8 basis.

As the Canadian dollar weakens, their beef prices go up. Transportation makes up much of the $6-$8 negative basis.

The high value of the dollar has pulled in beef imports from all over the world. Probably one of the biggest factors influencing Canadian imports is the strong U.S. dollar. The strong dollar over the last few years has been a real challenge to agriculture, in general.

The U.S. dollar is starting to weaken so that may correct over time. Agriculture needs a weak U.S. dollar so that we can export more. U.S. grain producers are particularly impacted with the strong U.S. dollar. Our domestic grains are too expensive to export.

Beef export demand, on the other hand, seems to be growing each year. I hope that the beef industry does not mess up our beef export opportunities as beef exports are a shining light for grain-fed beef.

I have a full paper on the Canadian-U.S. Trade Impact on my Web site at www.ag.ndsu.nodak/cow. Click the “New” button and you'll find the paper at the top of that list. You will need Adobe Acrobat reader to get it but you can download Adobe free by clicking on the icon on that page.

Harlan Hughes


Opportunities for beef production from pasture
On Dec. 13, 2000, Harlan Hughes received this message:

Dear Dr. Hughes,

I am to give a talk at a Forage Conference in January talking about opportunities for beef production from pasture. In 30 minutes I want to cover the benefits of temporary fencing, incorporating legumes, extending the grazing season, and pasture finishing through retention of calves and backgrounding with low ADG overwinter to maximize compensatory growth....All this and I want to use the current cattle cycle conditions to justify my reasoning...well there's my downfall...not too sure if I totally understand what are the best options for stocker operators and cow-calf operators regarding the upcoming market trends...could you give me any insight?

Thank you.

Harlan's reply:

I appreciate your contacting me with respect to the cattle cycle and how it impacts on beef production from pasture. I will try to briefly summarize a couple key points that you might want to consider in your talk.

Cattle numbers have been going down since 1996 and will continue going down at least one more year. As cattle numbers go down, beef prices should go up and remain strong through 2002 or 2003. If beef cow producers decide to hold back year 2000 calves, and I think they will, we could see the cow herd increase in 2002 through 2007.

With profits from beef cows high, increasing stocking rates through pasture management will pay some big dividends if they have the beef cows to take advantage of the higher prices. If they want to buy cows, they need to do it quickly. Bred animal prices are projected to go up as soon as beef cow producers decide to hold back heifers. Buying high priced bred animals can make them high cost producers.

I do not favor expanding the cow herd once the bred animal price goes up. It is almost to late to hold back heifers economically -- they will produce calves down the other side of the beef price cycle. That is what causes cattle cycles. I understand, however, that many producers will hold back heifers now that calf prices are high. In times of high prices they will tend to sell fewer calves. I can not condone this. I think they should sell more calves in times of high prices and build a financial reserve for the next down-turn in cattle prices.

Feeder calf supply also has been going down since 1996 and will continue to get smaller -- especially when heifers are removed from feeding and directed toward breeding. In order to keep feedlots full in year 2000, we have already run out of yearlings so we have moved to calf-feds. The number of yearlings off grass will continue to decrease as we move to more and more calf-feds; therefore, it will be hard to find grass cattle over the next few years. If they are found, the market price will be very, very high.

If you think about it, with today's genetics, who produces 625 pound calves in April or May? Our modern fast-track genetics makes grass cattle hard to find. Fall-born calves would be great but there are not many fall-born calves.

Due to the high purchase price relative to selling price off grass, I am projecting a fairly low profit rate from grass yearlings. This tends to happen at this point in the cattle cycle and will continue to be a problem for the next few years. Grass cattle seem to work the best on the downward side of beef price cycle (projected for 2004 through 2007) and seems to work especially well during the turn around phase of the cattle cycle (2004-2006).

Harlan Hughes

What's Market Advisor?

Harlan Hughes has spent a professional lifetime helping U.S. beef producers better manage the business end of their beef cow operations.

Contributors

Harlan Hughes

Harlan Hughes is a North Dakota State University professor emeritus and author of the monthly "Market Advisor" column that appears in BEEF magazine. He also consults and lectures widely,...

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