HUNTIN' DAYLIGHT - CORN WILL CONTINUE TO SURPRISE

Wes Ishmael

When profit is plentiful, making as much as you can via the aspects you control only makes sense. When the bottom line is running red, survival depends on such exploitation.

Consider the high cost of developing replacement heifers. Even those can be trimmed more than recent rules of thumb would suggest.

Specifically, heifers can be developed to lighter than traditional target weights without negative effects on profitability or future productivity.

That was the bottom line of research presented at December's annual Range Beef Cow Symposium by researchers Rick Funston and Jeremy Martin from the University of Nebraska West Central Research and Extension Center and researcher Andy Roberts of the Fort Keough Livestock and Range Research Laboratory at Miles City, Mont.

In the presentation considering extensive heifer development systems, they pointed to growing research that runs counter to the logic of recent decades which suggests heifers must achieve 60-65 percent of their mature body weight prior to first breeding in order to achieve long-term reproductive success.

For instance, in research during the last decade some studies indicate pre-breeding weights as low as 51 percent of mature weight were more economical than developing heifers to 57 percent of their mature weight, even though the lighter heifers were allowed 15 days more during the breeding season; conception rates were similar.

Likewise, in studies at Fort Keough, the researchers explain unlimited or restricted (27 percent less feed) feed during the post-weaning period supports the potential to reduce target weights and costs during heifer development.

“The association of age at onset of breeding and cumulative pregnancy rate was similar for heifers developed on the two protocols. However, restricted heifers were lighter at a given cumulative pregnancy rate,” say the researchers. “Thus, age at the beginning of the breeding season was more critical than body weight. Furthermore, rate of growth from birth to weaning accounted for more variation in puberty and AI pregnancy rate than did Average Daily Gain (ADG) during the post-weaning period. Neither age nor ADG prior to post-weaning period influenced final pregnancy rate. Thus, age and early growth rate (up to approximately eight months of age) influenced time of puberty and conception, but did not alter overall pregnancy rate in a 48 to 60-day breeding season.”

Bottom line, the researchers say, “Post-weaning management of heifers to achieve traditional target weights, particularly by feeding high-energy diets, is not supported by current research. Heifers developed on forage, however, generally require additional protein supplementation to achieve even modest gains. One reason reproductive performance has not been drastically impaired by feeding to lower target weights may relate to genetic changes in age of puberty.”

Up and Down and Round She Goes…

Back to the necessity of exploiting such fine-tuned management…

Though fundamental price relationships were so bent and twisted through the commodity bubble and then the Great Recession, they still apply.

Just consider the second week of January. USDA surprised everyone with its year-end crop production report, estimating a record corn crop of 13.2 billion bushels, nine percent more than the previous year.

Corn futures prices plummetted with the news, limit-down when the report was issued Tuesday (down 40¢/bu. on the Omaha cash market), another 8¢ Wednesday, then sideways to lower the rest of the week, especially on the front-end months.

That's fundamental.

As corn prices came crashing down, Feeder Cattle futures jumped to their highest levels since September.

That's fundamental, too, unlike times during the wind-up and wind-down to the commodity bubble when both corn and futures prices could break at the same time.

Short-term Corn Questions

Incidentally, though the USDA report provides a welcome price reprieve in the cattle markets, it comes with a huge question mark. Given the late start to the planting season and sloppy harvest conditions this fall, there's still a significant number of unharvested acres. Analsyts with the CME Group Daily Livestock Report estimated as much as five percent of corn acres—approximately 4.3 million acres—have yet to be harvested. That fact has plenty of folks wondering how it is that USDA raised its final yield estimate three bu./acre from the November estimate.

For its part, the same day it issued the report, USDA announced that it may re-poll producers who had unharvested acres prior to the January 12 report and may release updated acreage, yield, production and stocks estimates in its March 10 Crop Report.

According to the National Agriocultural Statistics Service, “When producers were surveyed in late November and early December, there was significant unharvested acreage of corn in Illinois, Michigan, Minnesota, North Dakota, South Dakota and Wisconsin; and significant unharvested acreage of soybeans in Georgia, North Carolina, South Carolina and Virginia.”

Even with the unexpected increase in corn production, January's World Agriculture Supply and Demand Estimates raised expected corn prices on both ends of the range, anticipating season-average prices of $3.40-$4.00/bu. For 2009-2110.

Longer Term Corn Questions

What's more, even if the estimates for 2009 corn production stand, there's lots more potential upside to corn demand.

Ethanol usually comes to mind. After all, the government-mandated inclusion of grain-based ethanol in gasoline helped spawn the commodity bubble.

Even while producers and consumers are still coming to grips with government policies joining the price of food and fuel at the hip through its mandates, the Evironmental Protection Agency is considering whether to increase the maximium allowable gasoline blending rate from 10 percent to 15 percent.

Tom Elam of Farm Econ, LLC, says in his analysis, Issues with an Ethanol Rate Increase: “Increasing the maximum blend of ethanol in gasoline, combined with higher 2010 RFS (Renewable Fuel Standard) requirements, will increase cost pressures on both ethanol and food producers. Those cost pressures will further erode the viability of ethanol and food producers. U.S. biofuels policies need to be revised to accommodate the inherent conflict between the RFS and our nation's limited ability to produce both food and fuel. The 2007 EISA (Energy Independence and Security Act of 2007) increases in the RFS have resulted in an ethanol sector that is not economically sustainable, even with large tax credit subsidies, the demand guarantees of the RFS, and a generous tariff on imported ethanol. Increasing the blending ceiling will do nothing to address this fundamental fact, and will likely make the economic situation worse for all corn users, including ethanol producers.”

Now, consider international demand. The United States is the world's largest corn producer and consumer. The second largest is China.

According to a recent report from the Economic Research Service, China's increasing industrial use of corn has dramatically decreased its corn exports—down from 16 million metric tons in 2003 to less than one million metric ton in 2008. There, as here, government policies created artificial markets. In their case, government subsidies supporting the industrial use of corn, and the export of industrial corn products. That worked swell economically when commodity prices were soaring. When prices plunged with the global recession, the Chinese government reversed its policies.

“As the 2009 harvest approached, the tradeoffs from supporting corn prices became clear. It was widely anticipated that the government would again support corn prices at a high level to protect farmers' income and encourage them to continue planting corn,” say ERS analysts. “However, the high corn price translated to negative profit margins for corn processors. According to news reports, many processing facilities were idle for much of 2009 and many were bankrupt or trying to sell their factories. Small privately owned companies—with less access to bank loans and ineligible for processing subsidies (only processors with at least 100,000 metric ton annual capacity were eligible)—were in an especially precarious position. High corn prices also crimped the profits of feed mills (who were not given subsidies) and livestock producers.”

Bottom line, Chinese economic growth manipulated by their government will likely mean less corn for export, and add to global price volatility at the least.

Cattle Producers see some Daylight

In the meantime, other market fundamentals are finally trending in a positive direction for cattle producers.

As Dillon Feuz, agricultural economist at Utah State University pointed out in a January In the Cattle Markets analaysis, “…fed cattle prices have recovered about $5-6/cwt. from the lows in early December. If the market could put on another $3-4, feedlots should be breaking even. For ranchers who have retained calves to sell them after the first of the year, that market has gained about $10/cwt. from fall lows in October. Cull cow prices have also strengthened $4-5/cwt. If these price trends can continue into spring, not only might cowboys be seeing green grass again, but they may also have some green to put in their pockets.”

More broadly, speaking to the decline in annual farm income last year, Murray Wise, founder and CEO of Westchester Group, Inc.—a leading agricultural asset management firm, said in January, “The agriculture industry has, in general, outperformed many other world industries throughout this global recession. Farm income in 2008 was one of the highest on record and a decrease should have been expected…There is so much capital looking for a home in agriculture that this will have little impact…Even today many investors are turning to agriculture as a viable investment. While many of us continue to invest our money in money markets currently earning only 0.31 percent, agriculture continues to offer its investors a three to four percent return.”







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