WEBVTT

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[MUSIC]

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Good evening. My name is David Kenyon.

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This evening on market update,

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we're going to have three speakers.

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First, I'm going to discuss

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the hog and pig report that was released

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last week and some of

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the marketing implications based on that report.

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Second, Dr. Wayne Purcell is going to

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discuss the cattle report that was released

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last week and some of

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the marketing opportunities resulting

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based on that information.

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The third speaker is going to be Dr. Bruce Bainbridge,

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who is going to talk about

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some alternative marketing strategies for cattle.

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After these three presentations,

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there will be a period of questions and answers.

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We would ask you as we go

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through that you'd be thinking of questions

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and when we get toward the end of the program that

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you phone those questions in.

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I'm going to discuss

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the hog and pig report that was released on

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June 30th and what potential that has

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in terms of affecting the price of

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hogs for the next six months.

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I'm basically going to do that in two segments.

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First, I'm going to try to set

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a little perspective in terms of the long run,

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in terms of where we have been in

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hog prices over the last 15 years and specifically,

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I'm going to discuss the hog cycle to give

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a little idea about where we are

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at this point in time in that cycle.

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After I do that,

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then I'm going to talk about

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the price of hogs based on the numbers that

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show up in the latest report

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and break that into two segments.

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One, in terms of

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the third quarter of this year, July, August,

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and September, and then talk about October,

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November, and December, what

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implications that it might have.

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Then I will conclude with a few summary remarks.

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First, let's look at the first slide that

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shows the hog cycle over the last 15 years.

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On this chart, on the horizontal axis are listed

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the years and on the vertical axis is the price of hogs.

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Now the one point that I want you all to

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remember from looking at this chart is that historically,

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anytime the price of hogs has been above $60,

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and I'm going to draw a line across here at $60.

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Anytime the price of hogs has been above $60,

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shortly thereafter, the price of

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hogs has dropped 15 to $20.

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As you can see in each of

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these years that once the price

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of hogs reached the level of $60,

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the price immediately dropped and sometimes as much

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as $30 within a year's period of time.

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Just let me mark a couple of

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these so you can see what I'm talking about.

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The first one back here in '73,

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you see that we reach

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$60 and notice that we stay there a very short

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period of time and within a matter

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of a year the price had dropped $30.

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That happened again in 1975.

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We reach that price level and within a year,

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again, the price had dropped $30.

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You can see several of the others

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as we come up to our current situation.

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Now this chart does not have the last six months on it.

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But last summer, after

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a considerable period of rather poor prices,

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hog prices reached $65 last summer,

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subsequently dropped below 50 in a six month period,

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but then have returned to that level.

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Just recently, they are back up.

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The futures have been back up to the $64 area.

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At this point in time,

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we are right back up here.

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In terms of the futures at the $64 area,

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we've dropped off a few dollars in the last week,

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but we are back up at this $60 level,

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which you can see looking across

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the years that anytime

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hog prices have reached that level,

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that they cannot sustain that level

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for a very long length of time.

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The result is that

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prices dropped precipitously after reaching that level.

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This sets a little perspective in the sense to

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realize that the price levels that we've

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been experiencing this last year and

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especially the $60 hogs last summer and

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the $60 hogs this summer are

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a very unusual phenomenon in

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hogs and does not happen very often.

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When it does happen,

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it does not last very long.

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We need to remember that the $60 hogs that we

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have now are extremely high relative to cost.

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As a result, hog production is very

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profitable at the moment and has been for over a year.

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You can expect that producers

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are going to respond to that.

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In fact, in the June hog and pig report,

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we do see that producers have responded

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to that higher price of the last year.

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In terms of long-term perspective,

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we just need to remember

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that we're at the top of a cycle,

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that we're up in the $60 area

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which we normally cannot sustain.

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The implication of that

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is the probabilities are very high,

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that prices are going to be moving down.

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That's the long run perspective.

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Now let me move to the short run analysis.

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I'm going to do this in two parts.

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First, I'm going to analyze the next three months,

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July, August, and September,

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and then October, November,

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and December using the data

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that is in the hog and pig report.

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On the next slide,

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we have the numbers

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for the 10 States that came out of the June report.

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Now I would like you to notice that

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these are 10 State numbers.

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If you read numbers out of some farm magazine,

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you may find the percentages to be slightly

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different because they are US numbers.

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I'm using 10 State numbers

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because that way we can compare across all quarters.

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We don't always get US numbers,

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but we always get the 10 State numbers

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so I'm using these numbers.

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Now, the increase in

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numbers was as expected before the report.

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If anything, they were a little on the low side.

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Some people had been expecting rather large increases,

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especially in breeding and market hogs.

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The actual numbers that came out in the report were as

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expected or slightly under

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some people's worst expectations.

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As a result, the initial response to

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the report was for hog prices to increase.

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All hogs and pigs were up nine percent.

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Kept for breeding was up 10 percent

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and the number of market hogs was up eight percent.

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Now it is good to remember that all of

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these numbers are as June 1,

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even though we did not get the report until June 30,

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the numbers reflect conditions on June 1.

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Now, given these numbers,

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what are the implications for

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the next three months in terms of the price of hogs?

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The hogs that will make up the slaughter for

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the next three months are basically in

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the weight category 60-119 pounds and 120-179 pounds.

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It is those hogs that will make up

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the slaughter during the next three months.

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As you can see,

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the number in the lighter category were up nine percent,

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the number in the heavier category were up nine percent.

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I'm going to average these and use eight percent.

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Now, what I'm going to do is take

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that eight percent number and use

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some historical relationships to try to

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determine what impact that

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is going to have on the price of hogs.

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I'm going to do that on this next slide.

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Let me walk you through this slide.

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What I'm doing here before I

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get caught up in the individual numbers

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is I am taking the increase in quantity in hogs,

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assuming the demand for hogs does not change initially,

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and then trying to figure out given that there

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is an eight percent increase in the quantity of hogs,

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what impact that is likely to have on price

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comparing it to the price that we

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had in the third quarter last year.

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From that, then I can get

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a ballpark estimate of what the price is

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likely to be in the next three months.

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Once I've done that, then I'm going to talk

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about other factors that affect demand

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and look at the charts to come up with

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my recommendations in terms of

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potential Marketing Strategies for the next three months.

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Let us go back and go through this step-by-step.

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First step is to realize that

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the numbers are up eight percent compared to last year.

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There are eight percent more hogs

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in the weight categories that make up

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the slaughter for the next three months than they

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were last year at this time.

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The next number I'm going to use

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is this number minus 1.77.

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This is called the flexibility of demand,

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a fancy term all it means is this,

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from historical analysis of

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hog prices and hog quantities,

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we know that when

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the quantity of hogs goes up one percent,

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it reduces the farm level price by 1.77 percent,

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assuming the price of other things that

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affect hog prices has not changed.

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What it says is every time

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hog numbers increase one percent,

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that the price will

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go in the opposite direction by 1.77 percent.

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What I've done in this case is

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take the eight percent increase in

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hog numbers compared to

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last year and multiplied it times the 1.77 coefficient,

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which says the price should decline 14.2

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percent compared to the third quarter last year.

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Okay. Assuming price of cattle,

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price of broilers and other things that affect

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the price of hogs has not changed.

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Now last year, during the third quarter,

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the average price of hogs was $61.13.

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It was actually as high as 65 at certain points,

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and it was below 60 also during the quarter,

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but the average for the whole quarter was 61.13.

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If you take the 14.2 percent drop in

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price and multiply it

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times the price last summer of 61.13,

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that says the price should decline by

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$8.68 this year compared to last year.

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If you subtract this $8.68,

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your first ballpark estimate of what the price

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of hogs in the third quarter of this year should be,

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comes out to be $52.45.

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Assuming the price of

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beef and broilers and other things has not changed,

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which obviously they have,

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which I will discuss in a minute.

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The important thing to remember here is

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that we are now beginning

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to get according to this report,

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a substantial increase in the quantity of

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hogs that will be available during the third quarter,

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and the impact of

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these hogs should be to reduce the price

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of hogs somewhere in the neighborhood of

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14 percent compared to last year.

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That assumes that other things that

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affect the price of hogs has not changed.

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Other things have changed.

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On the next slide,

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we will see some of

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the other factors that affect the price of

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hogs and their level this year compared to last year.

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One of the things that affects the price of

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hogs greatly is the price of cattle.

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This year, the price of cattle is about $10 a 100 weight

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higher than it was last year at this time.

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This helps support the demand for pork.

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As a result, we find that pork prices are running a

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little higher than we would

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anticipate just based on pork numbers alone.

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The next thing that is an important factor in affecting

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the price of hogs is the price of broilers,

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and they are down 18 cents a pound

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at retail this year compared to what they were last year.

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Now that should have an impact of

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decreasing the demand for

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pork because broilers are

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considerably cheaper this year than they were last year.

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If you look at what's happened

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the first half of this year,

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what you find is that the consumer demand for pork

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looks good compared to what's

00:16:17.920 --> 00:16:20.200
happened over the last few years.

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Over the last few years,

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the price has been declining,

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giving a relatively constant quantity,

00:16:28.630 --> 00:16:30.310
we've had to move that quantity

00:16:30.310 --> 00:16:31.570
at lower and lower prices,

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meaning that the demand for pork is declining.

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But this year, during the first six months of the year,

00:16:38.995 --> 00:16:41.890
we find that the quantity was only

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down 3 percent yet at retail,

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we were able to move that pork

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at 10-15 percent higher prices.

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That bodes good for the demand for pork,

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indicating that we were able to

00:16:56.905 --> 00:16:59.140
sell a slightly smaller product

00:16:59.140 --> 00:17:00.820
at a substantially higher price

00:17:00.820 --> 00:17:02.740
indicating that the demand for pork at

00:17:02.740 --> 00:17:04.750
this point in time appears to be in

00:17:04.750 --> 00:17:06.640
relatively good shape compared to what

00:17:06.640 --> 00:17:09.025
it's been for the last several years.

00:17:09.025 --> 00:17:11.890
Now, based on that information,

00:17:11.890 --> 00:17:15.430
we have some idea of what the supply and demand numbers

00:17:15.430 --> 00:17:16.480
indicate the price of

00:17:16.480 --> 00:17:18.475
pork should be in the third quarter.

00:17:18.475 --> 00:17:23.215
These numbers indicate in the area of $52-$53.

00:17:23.215 --> 00:17:25.480
Pork is considerably higher than

00:17:25.480 --> 00:17:27.940
that right now, it's about 60.

00:17:27.940 --> 00:17:30.580
So the general indication would be

00:17:30.580 --> 00:17:33.850
that the trend is going to be down.

00:17:33.850 --> 00:17:36.880
Now, need to look and

00:17:36.880 --> 00:17:40.390
see what the market is saying about the price of

00:17:40.390 --> 00:17:43.900
hogs so the next slide that I have here is

00:17:43.900 --> 00:17:47.830
the August hog futures and this chart,

00:17:47.830 --> 00:17:50.380
I think really helps us because it has

00:17:50.380 --> 00:17:52.960
a consistent upward trend and we can draw

00:17:52.960 --> 00:17:56.725
a nice trend line on it and based off of this chart,

00:17:56.725 --> 00:17:59.080
I think it's relatively easy to make

00:17:59.080 --> 00:18:01.810
a marketing recommendation that we

00:18:01.810 --> 00:18:04.795
can have a considerable degree of confidence in.

00:18:04.795 --> 00:18:06.535
If you look at this chart,

00:18:06.535 --> 00:18:08.305
over the last three months,

00:18:08.305 --> 00:18:11.810
if you connect the low prices,

00:18:12.120 --> 00:18:15.440
tried to do this carefully,

00:18:17.700 --> 00:18:21.430
you find a well-established

00:18:21.430 --> 00:18:25.390
marketing upward trending line

00:18:25.390 --> 00:18:26.980
that indicates that the price of

00:18:26.980 --> 00:18:29.695
hogs has been continuing to go up.

00:18:29.695 --> 00:18:32.140
Now notice this is August hogs,

00:18:32.140 --> 00:18:35.290
which is in the middle of the third quarter and

00:18:35.290 --> 00:18:38.530
that the futures market is currently indicating that

00:18:38.530 --> 00:18:40.780
the price of hogs is going to be a little

00:18:40.780 --> 00:18:46.339
higher than the numbers I just analyzed indicated.

00:18:46.770 --> 00:18:50.635
Think what producers need to do at this point,

00:18:50.635 --> 00:18:54.280
given that they have this well established trend in

00:18:54.280 --> 00:18:57.220
place and given that

00:18:57.220 --> 00:19:01.285
the price of hogs right now is that very good level.

00:19:01.285 --> 00:19:04.850
To draw this trend line here,

00:19:04.920 --> 00:19:07.345
keep it in place,

00:19:07.345 --> 00:19:12.370
watch this on a daily basis and note price hogs in

00:19:12.370 --> 00:19:14.110
the near future and

00:19:14.110 --> 00:19:18.220
the next several months until this trend line is broken.

00:19:18.220 --> 00:19:20.230
Until this trend line is broken,

00:19:20.230 --> 00:19:23.380
there's really no reason to be involved in

00:19:23.380 --> 00:19:25.705
forward pricing and establishing

00:19:25.705 --> 00:19:28.600
the price of hogs for the next several months.

00:19:28.600 --> 00:19:33.070
Even though the price may be trending down slightly until

00:19:33.070 --> 00:19:35.350
the futures market picks that up and

00:19:35.350 --> 00:19:37.900
indicates that prices are going to be moving down,

00:19:37.900 --> 00:19:39.910
there is no reason to be

00:19:39.910 --> 00:19:43.090
involved in selling in this market at the current time,

00:19:43.090 --> 00:19:44.335
at these price levels,

00:19:44.335 --> 00:19:46.999
hogs are very profitable.

00:19:48.180 --> 00:19:51.730
Next, I'm going to move to

00:19:51.730 --> 00:19:55.120
the last three months of this year, October, November,

00:19:55.120 --> 00:19:58.360
December, and analyze the implication of the numbers and

00:19:58.360 --> 00:19:59.560
the hog and pig report

00:19:59.560 --> 00:20:03.830
for the last three months of this year.

00:20:08.160 --> 00:20:12.775
Slaughter in the fourth quarter of this year

00:20:12.775 --> 00:20:15.745
basically comes from the pig crop

00:20:15.745 --> 00:20:18.820
in March, April, and May.

00:20:18.820 --> 00:20:22.060
The pigs born in those three months will basically

00:20:22.060 --> 00:20:25.075
make up the slaughter in October, November, and December.

00:20:25.075 --> 00:20:30.280
From the report, again using the 10 State numbers,

00:20:30.280 --> 00:20:32.680
not US numbers, the 10 State numbers,

00:20:32.680 --> 00:20:36.080
the 10 major producing hog states.

00:20:36.240 --> 00:20:41.030
The pig crop was up 10 percent.

00:20:42.500 --> 00:20:46.800
That indicates a substantial increase

00:20:46.800 --> 00:20:48.390
in the quantity of hogs that are going to be

00:20:48.390 --> 00:20:51.165
available this fall in

00:20:51.165 --> 00:20:54.255
the fourth quarter based on this report.

00:20:54.255 --> 00:20:56.940
Now using that number and

00:20:56.940 --> 00:21:00.450
using the same procedure that I used before,

00:21:00.450 --> 00:21:01.920
you can use that number

00:21:01.920 --> 00:21:03.870
compared to the price as last year to get

00:21:03.870 --> 00:21:09.515
an idea of what the price level this fall maybe for hogs.

00:21:09.515 --> 00:21:11.995
Using the same procedure,

00:21:11.995 --> 00:21:15.880
you find that the quantity is up 10 percent.

00:21:15.880 --> 00:21:17.365
Historically,

00:21:17.365 --> 00:21:19.765
that 10 percent increase

00:21:19.765 --> 00:21:24.825
would result in a 17.7 percent change in price.

00:21:24.825 --> 00:21:27.170
A reduction in price since

00:21:27.170 --> 00:21:30.000
the quantity it is has increased.

00:21:30.360 --> 00:21:33.905
This means, or confirms again,

00:21:33.905 --> 00:21:37.580
that we would expect the cash price a hogs over

00:21:37.580 --> 00:21:39.590
the next six months to be trending in

00:21:39.590 --> 00:21:41.240
a downward direction compared to

00:21:41.240 --> 00:21:43.400
last year and absolutely.

00:21:43.400 --> 00:21:46.610
Last year, in the fourth quarter,

00:21:46.610 --> 00:21:50.250
the average price was $53.

00:21:51.210 --> 00:21:56.105
This 17.7 percent drop in the price

00:21:56.105 --> 00:21:58.340
multiplied times the price last year

00:21:58.340 --> 00:22:02.205
indicates a price decline of $9.40,

00:22:02.205 --> 00:22:04.220
and so the first estimate of

00:22:04.220 --> 00:22:06.530
the price level for this fall,

00:22:06.530 --> 00:22:10.830
the fourth quarter is $43.68.

00:22:10.830 --> 00:22:13.445
Now that price level,

00:22:13.445 --> 00:22:17.840
like the price level in the third quarter is

00:22:17.840 --> 00:22:20.655
about four dollars less

00:22:20.655 --> 00:22:23.885
than what the futures market currently says,

00:22:23.885 --> 00:22:27.680
the price is going to be in the fourth quarter.

00:22:27.680 --> 00:22:30.680
Let me show you what the futures market is

00:22:30.680 --> 00:22:34.460
indicating for the fourth quarter and again,

00:22:34.460 --> 00:22:36.320
let me draw a trend line on here.

00:22:36.320 --> 00:22:38.820
This one is not near as neat.

00:22:40.110 --> 00:22:42.550
Connecting the lows in

00:22:42.550 --> 00:22:46.015
early April and the low just before the report.

00:22:46.015 --> 00:22:47.650
And you will see again that there's

00:22:47.650 --> 00:22:49.840
a strong uptrend report.

00:22:49.840 --> 00:22:54.655
If we can zoom in on just the last few days here,

00:22:54.655 --> 00:22:58.075
we see several interesting things.

00:22:58.075 --> 00:23:02.649
One, we see that just before the report,

00:23:02.649 --> 00:23:07.375
the market was very uncertain as to what direction to go.

00:23:07.375 --> 00:23:10.540
We see that there was a lot of price volatility.

00:23:10.540 --> 00:23:11.560
Prices were going up,

00:23:11.560 --> 00:23:14.740
they were going down two days just before the report,

00:23:14.740 --> 00:23:16.540
they broke down hard.

00:23:16.540 --> 00:23:18.550
Then after the report,

00:23:18.550 --> 00:23:21.145
we can see that we have two days

00:23:21.145 --> 00:23:24.370
where the market moved up extremely strong.

00:23:24.370 --> 00:23:26.920
What that means is that

00:23:26.920 --> 00:23:30.130
the numbers as they were analyzed by the industry,

00:23:30.130 --> 00:23:33.010
are not as bearish for

00:23:33.010 --> 00:23:37.585
the future months as they had previously anticipated.

00:23:37.585 --> 00:23:40.870
So what that means is the industry

00:23:40.870 --> 00:23:43.090
was expecting even larger numbers

00:23:43.090 --> 00:23:44.350
in terms of the pig crop

00:23:44.350 --> 00:23:46.180
and farrowing intentions for

00:23:46.180 --> 00:23:48.160
this fall so that these numbers were not as

00:23:48.160 --> 00:23:52.705
bearish as they were expected to be by some.

00:23:52.705 --> 00:23:54.460
Now the implication of that in

00:23:54.460 --> 00:23:57.505
terms of the market is that

00:23:57.505 --> 00:24:01.180
the fundamental analysis of the supply and demand factors

00:24:01.180 --> 00:24:05.305
indicates that the price should be in the area $43.

00:24:05.305 --> 00:24:06.700
But if you go back and look at

00:24:06.700 --> 00:24:08.380
the demand side and see that

00:24:08.380 --> 00:24:11.830
the market has basically been trading $3-$4 above that.

00:24:11.830 --> 00:24:13.840
What that says for the fall

00:24:13.840 --> 00:24:15.730
is that the price should basically

00:24:15.730 --> 00:24:19.885
be in the range of $43-$46, $47.

00:24:19.885 --> 00:24:24.790
And currently, the future's market is indicating $47.

00:24:24.790 --> 00:24:27.430
So I would indicate again here,

00:24:27.430 --> 00:24:29.020
there is a trend line in

00:24:29.020 --> 00:24:32.440
place and that you would not necessarily

00:24:32.440 --> 00:24:37.960
need to price until we get a close below that trend line.

00:24:37.960 --> 00:24:41.425
But I want to issue a little more caution

00:24:41.425 --> 00:24:45.295
for the fourth quarter then for the third quarter.

00:24:45.295 --> 00:24:48.700
If you look at the future's market for cattle,

00:24:48.700 --> 00:24:51.385
you will see that they are estimating

00:24:51.385 --> 00:24:53.875
a considerably lower price for cattle

00:24:53.875 --> 00:24:56.770
in the fourth quarter then we are currently enjoying.

00:24:56.770 --> 00:24:58.600
And that is one of the things that is

00:24:58.600 --> 00:25:01.810
propping hog prices up right now.

00:25:01.810 --> 00:25:04.825
So if cattle prices

00:25:04.825 --> 00:25:06.820
should return to the levels

00:25:06.820 --> 00:25:08.260
indicated by the futures market,

00:25:08.260 --> 00:25:10.405
which are considerably lower in the fall,

00:25:10.405 --> 00:25:13.735
then we may see a larger drop in hog numbers.

00:25:13.735 --> 00:25:18.835
It's also good to remind you then in 1985,

00:25:18.835 --> 00:25:21.250
we had very similar numbers in

00:25:21.250 --> 00:25:24.505
the hog and pig report that we have this year.

00:25:24.505 --> 00:25:28.405
Hog prices dip down from

00:25:28.405 --> 00:25:33.415
about 55 in June to 38 in October.

00:25:33.415 --> 00:25:38.480
So they moved almost $20 in four months.

00:25:38.520 --> 00:25:43.135
So there is the potential in

00:25:43.135 --> 00:25:49.074
the fourth quarter for substantially lower prices.

00:25:49.074 --> 00:25:53.125
To close up my section of the program,

00:25:53.125 --> 00:25:55.900
let me put this overhead on here,

00:25:55.900 --> 00:25:58.015
which kind of summarizes

00:25:58.015 --> 00:26:01.150
the price estimates that I have developed,

00:26:01.150 --> 00:26:04.780
indicating that for the third quarter this year,

00:26:04.780 --> 00:26:09.160
I've put a nice range here so that I hopefully will fall

00:26:09.160 --> 00:26:13.810
inside of it for the quarter in the 50-56 area.

00:26:13.810 --> 00:26:16.255
Remembering that right now,

00:26:16.255 --> 00:26:18.295
we're at the 60 level.

00:26:18.295 --> 00:26:20.740
Last week was the first week and

00:26:20.740 --> 00:26:23.650
a long time where he had an increase in hog slaughter.

00:26:23.650 --> 00:26:25.810
So they increase the numbers that we see in

00:26:25.810 --> 00:26:28.030
the June report is apparently beginning to

00:26:28.030 --> 00:26:30.340
come to market and

00:26:30.340 --> 00:26:33.745
that prices are going to begin to soften.

00:26:33.745 --> 00:26:36.400
If you draw your trend line in on

00:26:36.400 --> 00:26:39.925
the August hog chart and use that as a pricing signal,

00:26:39.925 --> 00:26:43.045
you should be in good shape in the third quarter.

00:26:43.045 --> 00:26:46.135
It's the fourth quarter that I'm worried about.

00:26:46.135 --> 00:26:53.800
This price level is $12-$18 below where we are right now.

00:26:53.800 --> 00:26:57.100
That seems like an awful large move

00:26:57.100 --> 00:26:58.420
at this point in time.

00:26:58.420 --> 00:27:00.670
But let me remind you of

00:27:00.670 --> 00:27:04.510
the chart that I had on at the very beginning and I

00:27:04.510 --> 00:27:06.010
have another one and I'm going to put it up

00:27:06.010 --> 00:27:07.570
here again to make

00:27:07.570 --> 00:27:11.520
this point that anytime

00:27:11.520 --> 00:27:14.700
hog prices have been up in the $60 area,

00:27:14.700 --> 00:27:17.645
and again, that's where we are right now.

00:27:17.645 --> 00:27:20.815
That they do not stay there long,

00:27:20.815 --> 00:27:22.555
and when they break,

00:27:22.555 --> 00:27:27.340
the break is hard and they come down fast.

00:27:27.340 --> 00:27:33.670
Historically, you get expansion in hog numbers when

00:27:33.670 --> 00:27:35.950
the ratio of hog prices to

00:27:35.950 --> 00:27:40.160
corn prices is greater than 18 to 1.

00:27:41.010 --> 00:27:44.110
For the last year,

00:27:44.110 --> 00:27:50.110
that ratio has been running at greater than 30 to 1,

00:27:50.110 --> 00:27:53.335
highest levels we have ever seen.

00:27:53.335 --> 00:27:55.240
Up to this point,

00:27:55.240 --> 00:27:59.200
the financial stress of many farmers in the Midwest has

00:27:59.200 --> 00:28:01.600
probably curtail them from

00:28:01.600 --> 00:28:04.705
expanding as rapidly as they would like.

00:28:04.705 --> 00:28:06.880
But at this price level,

00:28:06.880 --> 00:28:09.100
with corn below $2,

00:28:09.100 --> 00:28:11.815
the hog corn ratio is extremely favorable.

00:28:11.815 --> 00:28:13.360
Hog production is very

00:28:13.360 --> 00:28:16.270
profitable at the current price of corn and hogs,

00:28:16.270 --> 00:28:18.490
and we can be sure that

00:28:18.490 --> 00:28:20.890
hog numbers will continue to increase.

00:28:20.890 --> 00:28:24.850
So I would strongly encourage farmers to take

00:28:24.850 --> 00:28:27.490
advantage of pricing opportunities that now

00:28:27.490 --> 00:28:30.130
exists for the months of October,

00:28:30.130 --> 00:28:33.835
December, February, April, even out into next summer,

00:28:33.835 --> 00:28:39.610
all of them are trading at $42-$45 at this point in time.

00:28:39.610 --> 00:28:42.280
Which means forward pricing opportunities

00:28:42.280 --> 00:28:44.050
gives you the opportunity to lock in

00:28:44.050 --> 00:28:50.215
a profit margin of $15-$20 ahead over the next 12 months.

00:28:50.215 --> 00:28:52.750
I am relatively confident that

00:28:52.750 --> 00:28:55.315
sometime in the next few months,

00:28:55.315 --> 00:28:57.250
and most likely, if not before

00:28:57.250 --> 00:28:59.110
the September hog pig report

00:28:59.110 --> 00:29:00.700
which will come out on the 30th.

00:29:00.700 --> 00:29:02.470
Shortly thereafter, there will be

00:29:02.470 --> 00:29:04.750
a substantial break in this market.

00:29:04.750 --> 00:29:07.810
So I strongly encourage you to evaluate closely

00:29:07.810 --> 00:29:09.265
the price and opportunities

00:29:09.265 --> 00:29:11.620
for the fourth quarter of this year.

00:29:11.620 --> 00:29:14.950
At this time, Dr. Wayne Purcell is

00:29:14.950 --> 00:29:18.055
going to come up and discuss with you

00:29:18.055 --> 00:29:21.250
the cattle report that was released last week and the

00:29:21.250 --> 00:29:22.975
implications of that for

00:29:22.975 --> 00:29:26.180
various marketing alternatives for cattle.

00:29:31.110 --> 00:29:34.855
Thank you, David. I'm going to talk about cattle,

00:29:34.855 --> 00:29:36.970
but I'd like to reiterate a point that he

00:29:36.970 --> 00:29:40.450
made once or twice during his presentation.

00:29:40.450 --> 00:29:42.790
There's a lot of relationship between where

00:29:42.790 --> 00:29:43.930
the cattle markets are going to go

00:29:43.930 --> 00:29:45.445
and where the hog market is going to go.

00:29:45.445 --> 00:29:47.590
If he's right and I think he is,

00:29:47.590 --> 00:29:50.005
that across the next 6-9 months to a year,

00:29:50.005 --> 00:29:52.780
we're going to see downward moves in hog prices.

00:29:52.780 --> 00:29:54.160
We need to keep that in mind

00:29:54.160 --> 00:29:56.200
as we think about the cattle market.

00:29:56.200 --> 00:29:59.050
I'm going to talk about two dimensions

00:29:59.050 --> 00:30:01.705
of the cattle market here this evening.

00:30:01.705 --> 00:30:04.780
It's a complex area to present and a brief time period,

00:30:04.780 --> 00:30:06.280
but I think many of you are

00:30:06.280 --> 00:30:08.020
concerned about what to do about

00:30:08.020 --> 00:30:09.310
your pricing problems and

00:30:09.310 --> 00:30:11.800
pricing issues across the next few months.

00:30:11.800 --> 00:30:13.330
Should you be forward pricing?

00:30:13.330 --> 00:30:15.220
You feed the cattle for this fall now,

00:30:15.220 --> 00:30:17.410
if you've got a pen, a fed cattle on feed,

00:30:17.410 --> 00:30:18.955
should you get them priced?

00:30:18.955 --> 00:30:21.550
But I think a lot of you also have some concerns

00:30:21.550 --> 00:30:24.310
about what to do in the cattle business in the long run.

00:30:24.310 --> 00:30:26.035
In other words,

00:30:26.035 --> 00:30:27.940
the better prices that we're

00:30:27.940 --> 00:30:30.475
seeing this year going to be sustained?

00:30:30.475 --> 00:30:32.950
Have we really turned back to the point that we're in

00:30:32.950 --> 00:30:34.450
a hard building phase and will we

00:30:34.450 --> 00:30:36.250
be able to support that over time?

00:30:36.250 --> 00:30:38.515
I'm going to try to shed a little bit of light on

00:30:38.515 --> 00:30:41.095
what's going on and a longer-term context.

00:30:41.095 --> 00:30:43.210
Perhaps, help you develop

00:30:43.210 --> 00:30:44.500
some ideas about what you should

00:30:44.500 --> 00:30:46.615
do in terms of long-term investments

00:30:46.615 --> 00:30:48.370
in the cattle business.

00:30:48.370 --> 00:30:50.770
This first slide gives us a little bit of

00:30:50.770 --> 00:30:55.164
background and I'll walk you through it piece by piece.

00:30:55.164 --> 00:30:56.470
Having seen in all,

00:30:56.470 --> 00:30:57.910
just let me focus your attention

00:30:57.910 --> 00:31:01.300
that back in the mid 1970s,

00:31:01.300 --> 00:31:02.770
we came in with

00:31:02.770 --> 00:31:07.270
about a 132 million head of total cattle and calves.

00:31:07.270 --> 00:31:10.809
We had demand problems that started develop,

00:31:10.809 --> 00:31:13.030
I think in the late 1970s and

00:31:13.030 --> 00:31:16.045
really got accentuated in the 1980s.

00:31:16.045 --> 00:31:18.250
And I can't over stress folks,

00:31:18.250 --> 00:31:21.370
the importance of you understanding that the reason we

00:31:21.370 --> 00:31:23.710
liquidate it from a 132 million head

00:31:23.710 --> 00:31:25.300
down to a 102 million head,

00:31:25.300 --> 00:31:28.325
is because demand for beef was in bad shape.

00:31:28.325 --> 00:31:31.410
Some analyst around the country would contest that point,

00:31:31.410 --> 00:31:32.730
but I'm going to build

00:31:32.730 --> 00:31:34.935
that point a little bit as we go through this evening.

00:31:34.935 --> 00:31:37.380
We just didn't have the demand and move

00:31:37.380 --> 00:31:38.640
the product at a price that would

00:31:38.640 --> 00:31:39.990
be profitable down into cattle,

00:31:39.990 --> 00:31:42.650
calf level, and we ran people out of business.

00:31:42.650 --> 00:31:44.590
I think that's the straight

00:31:44.590 --> 00:31:46.450
and simple of it and that's going to be

00:31:46.450 --> 00:31:48.160
very important then in terms of

00:31:48.160 --> 00:31:51.590
looking at whether or not that situation is improving.

00:31:51.590 --> 00:31:55.965
We've got a smaller herd than we've had since about 1962.

00:31:55.965 --> 00:31:57.795
With that 102 million head,

00:31:57.795 --> 00:31:59.370
we're trying to put everything we can

00:31:59.370 --> 00:32:01.295
get to walk in a feedlot on feed.

00:32:01.295 --> 00:32:04.795
Cattle on feed are up 6 percent right now as of June 1,

00:32:04.795 --> 00:32:06.760
inspired at a much smaller herd than we

00:32:06.760 --> 00:32:09.250
had last year and had a few years ago.

00:32:09.250 --> 00:32:12.595
This year we're seeing reduced cow and non-fed slaughter.

00:32:12.595 --> 00:32:14.844
That certainly would be expected.

00:32:14.844 --> 00:32:16.810
We've got the bulk of the dairy about

00:32:16.810 --> 00:32:19.480
program and the slaughter related there too behind us.

00:32:19.480 --> 00:32:21.070
So far this year,

00:32:21.070 --> 00:32:23.470
slaughter for cattle is down about five percent.

00:32:23.470 --> 00:32:25.030
That will not last.

00:32:25.030 --> 00:32:26.830
We'll see a seasonal increase in

00:32:26.830 --> 00:32:28.900
cow and non-fed slaughter this fall.

00:32:28.900 --> 00:32:31.420
And all you have to do is look up at about two lines and

00:32:31.420 --> 00:32:34.150
recognize that we're 6 percent more cattle on feed.

00:32:34.150 --> 00:32:35.530
The number of cattle coming out

00:32:35.530 --> 00:32:36.670
of feedlots are going to increase

00:32:36.670 --> 00:32:37.870
fairly sharply as we move

00:32:37.870 --> 00:32:39.850
out toward the latter part of the year.

00:32:39.850 --> 00:32:42.760
Mid-year inventory down about two percent.

00:32:42.760 --> 00:32:44.680
Now, I'll stop and talk

00:32:44.680 --> 00:32:47.605
just a moment with you about that particular figure.

00:32:47.605 --> 00:32:49.780
Lot of expectation that we may have

00:32:49.780 --> 00:32:51.790
turned back to a herd building phase and yet

00:32:51.790 --> 00:32:53.830
we get this median number that shows

00:32:53.830 --> 00:32:56.125
us two percent below 1986 levels.

00:32:56.125 --> 00:32:59.110
Folks, what I think we've seen is contained with

00:32:59.110 --> 00:33:01.570
relatively strong liquidation during

00:33:01.570 --> 00:33:03.790
the second half of 1986.

00:33:03.790 --> 00:33:05.200
And we've probably been

00:33:05.200 --> 00:33:06.760
holding back some heifers and doing

00:33:06.760 --> 00:33:08.350
a little bit of herd building during

00:33:08.350 --> 00:33:10.750
the first half of 1987.

00:33:10.750 --> 00:33:12.250
So in net, we come out

00:33:12.250 --> 00:33:13.750
with a two percent lower inventory.

00:33:13.750 --> 00:33:15.475
That didn't surprise me much.

00:33:15.475 --> 00:33:17.500
I have a feeling that if the price is hold

00:33:17.500 --> 00:33:19.480
anywhere like they are now,

00:33:19.480 --> 00:33:22.345
we'll probably see this herd liquidation stop.

00:33:22.345 --> 00:33:23.950
When we compare January 1,

00:33:23.950 --> 00:33:26.125
'88 figures to January 1,

00:33:26.125 --> 00:33:29.320
'87 figures of about a 102 million head.

00:33:29.320 --> 00:33:32.620
I think we needn't be alarmed that

00:33:32.620 --> 00:33:34.270
we don't see any tendency

00:33:34.270 --> 00:33:35.875
to stopping this herd liquidation.

00:33:35.875 --> 00:33:37.600
I think it's there. I just don't

00:33:37.600 --> 00:33:40.030
think the numbers have quite caught up yet.

00:33:40.030 --> 00:33:42.940
Now, I'm going to turn next just a moment to

00:33:42.940 --> 00:33:45.730
look in at the demand side in a little bit more detail.

00:33:45.730 --> 00:33:47.680
I, for years, have

00:33:47.680 --> 00:33:49.660
been trying to stress the various audiences,

00:33:49.660 --> 00:33:52.314
the importance of understanding

00:33:52.314 --> 00:33:54.505
what's going on on the demand side for beef.

00:33:54.505 --> 00:33:56.260
There is no doubt in my mind that

00:33:56.260 --> 00:33:58.420
the massive liquidation and the losses we

00:33:58.420 --> 00:34:00.475
sustained across the past 10 years

00:34:00.475 --> 00:34:01.450
have been related to

00:34:01.450 --> 00:34:03.475
that deterioration on the demand side.

00:34:03.475 --> 00:34:05.740
Let me take a look at this slide and I'll

00:34:05.740 --> 00:34:08.665
start working with you just a little bit on this.

00:34:08.665 --> 00:34:10.570
Try to keep from given you

00:34:10.570 --> 00:34:12.310
too many and numbers in the presentation,

00:34:12.310 --> 00:34:15.010
but I think we have to use a few to make the point.

00:34:15.010 --> 00:34:18.985
From 1979 through about 1985,

00:34:18.985 --> 00:34:21.385
it took a 30 percent decrease,

00:34:21.385 --> 00:34:25.270
and the inflation adjusted price of retail beef to

00:34:25.270 --> 00:34:27.880
move a largely constant per capita supply

00:34:27.880 --> 00:34:29.695
into the consumer's basket.

00:34:29.695 --> 00:34:31.690
We'll come back to the bottom part of

00:34:31.690 --> 00:34:33.160
that sheet in just a moment.

00:34:33.160 --> 00:34:34.975
Now that I've let you look at it,

00:34:34.975 --> 00:34:37.790
let's cover it for just a moment.

00:34:38.310 --> 00:34:41.965
If it takes a substantial decrease in

00:34:41.965 --> 00:34:44.650
price to move the same quantity

00:34:44.650 --> 00:34:46.419
of anything anything into consumption,

00:34:46.419 --> 00:34:48.730
don't think you have to have an advanced degree in

00:34:48.730 --> 00:34:50.050
economics to figure out you've got

00:34:50.050 --> 00:34:52.255
something wrong on the demand side.

00:34:52.255 --> 00:34:54.310
In our profession, we've still

00:34:54.310 --> 00:34:55.900
got some of the elaborate models are saying,

00:34:55.900 --> 00:34:57.850
"We haven't seen anything happen yet," but

00:34:57.850 --> 00:35:00.414
I think the numbers speak for themselves.

00:35:00.414 --> 00:35:02.890
A 30 percent decrease

00:35:02.890 --> 00:35:04.900
in inflation adjusted price required

00:35:04.900 --> 00:35:07.540
from '79-'85 to move essentially

00:35:07.540 --> 00:35:10.870
the same per capita supply of beef into consumption.

00:35:10.870 --> 00:35:13.420
That's why it hasn't been profitable back

00:35:13.420 --> 00:35:15.910
down at the cow-calf level, folks.

00:35:15.910 --> 00:35:18.250
That's why we have not

00:35:18.250 --> 00:35:20.770
been able to pay any price increase up through

00:35:20.770 --> 00:35:22.930
the retail level so that we can generate

00:35:22.930 --> 00:35:25.930
better prices for the cow-calf operator.

00:35:25.930 --> 00:35:27.970
It's all very important I think,

00:35:27.970 --> 00:35:31.270
to think about whether or not the situation has improved.

00:35:31.270 --> 00:35:34.225
I must spend some time on that because if I were in

00:35:34.225 --> 00:35:35.920
the cattle business and

00:35:35.920 --> 00:35:38.575
contemplating some expanded investment,

00:35:38.575 --> 00:35:40.750
I would really want to know what in

00:35:40.750 --> 00:35:42.970
the heck is going on with the demand side,

00:35:42.970 --> 00:35:45.250
and whether that scenario that has been bad

00:35:45.250 --> 00:35:48.025
there for some several years is starting to turn around.

00:35:48.025 --> 00:35:53.410
Is demand improving? In 1986,

00:35:53.410 --> 00:35:54.850
and I'll show you this in just a moment,

00:35:54.850 --> 00:35:56.705
just an illustrative way,

00:35:56.705 --> 00:36:00.150
we saw a small increase in quantity per capita move into

00:36:00.150 --> 00:36:03.420
consumption at a lower inflation adjusted price.

00:36:03.420 --> 00:36:05.400
Now, that looks a little bit of encouraging to me.

00:36:05.400 --> 00:36:07.220
I'll come back and explain to you why.

00:36:07.220 --> 00:36:09.700
I think that looks better than a scenario

00:36:09.700 --> 00:36:12.520
that we've seen from '79-'85. I'll show in just a moment.

00:36:12.520 --> 00:36:15.595
Quarter 1 of '87 bothers me,

00:36:15.595 --> 00:36:17.110
and I'll show you that too.

00:36:17.110 --> 00:36:19.690
We saw a smaller per capita supply

00:36:19.690 --> 00:36:21.985
of beef move into consumption

00:36:21.985 --> 00:36:25.150
only at a lower inflation adjusted price

00:36:25.150 --> 00:36:27.535
compared to quarter 1 of '86.

00:36:27.535 --> 00:36:31.180
A day Kenyon was talking about the first part of 1987,

00:36:31.180 --> 00:36:33.564
looking a little bit better on pork demand.

00:36:33.564 --> 00:36:34.960
I want to talk to you a little bit about

00:36:34.960 --> 00:36:36.640
the possibilities in quarter 2,

00:36:36.640 --> 00:36:37.900
but more we haven't seen it in

00:36:37.900 --> 00:36:39.790
my opinion yet in quarter 1.

00:36:39.790 --> 00:36:44.245
You don't bring up improvement when you still got

00:36:44.245 --> 00:36:46.510
a smaller quantity of product moving

00:36:46.510 --> 00:36:48.910
into consumption all at lower prices.

00:36:48.910 --> 00:36:50.590
Now, I grant you that

00:36:50.590 --> 00:36:52.090
could improve as we move on to the year.

00:36:52.090 --> 00:36:53.695
But it's very important, I think,

00:36:53.695 --> 00:36:56.020
in terms of whether not it does in fact improve.

00:36:56.020 --> 00:36:58.720
I'm going to pursue that issue with this next slide.

00:36:58.720 --> 00:37:00.970
I'll spend some time on this one.

00:37:00.970 --> 00:37:03.700
I constructed this one and just built it

00:37:03.700 --> 00:37:06.640
without using actual numbers to illustrate a point.

00:37:06.640 --> 00:37:10.180
What I've got here is a scenario

00:37:10.180 --> 00:37:13.930
that shows quantity down here and price on this axis.

00:37:13.930 --> 00:37:15.970
These would be prices after

00:37:15.970 --> 00:37:17.830
we've taken out the influence of inflation,

00:37:17.830 --> 00:37:19.180
because that's the only way you

00:37:19.180 --> 00:37:21.550
can legitimately compare years.

00:37:21.550 --> 00:37:25.510
We had a price and a quantity here, say for '79.

00:37:25.510 --> 00:37:26.765
I just came down the year and saw

00:37:26.765 --> 00:37:28.405
a little bit of variation.

00:37:28.405 --> 00:37:31.870
But basically '79, '80, '81, '82, '83,

00:37:31.870 --> 00:37:33.670
'84, '85 was constant

00:37:33.670 --> 00:37:35.620
in terms of quantity. You see what I mean?

00:37:35.620 --> 00:37:39.460
You could draw a straight line right down through there,

00:37:39.460 --> 00:37:41.110
and you would essentially have

00:37:41.110 --> 00:37:44.275
very little change around that in terms of quantity.

00:37:44.275 --> 00:37:47.390
Look what happened to price.

00:37:47.640 --> 00:37:50.650
That's that 30 percent decline from

00:37:50.650 --> 00:37:54.475
here down to here that I'm talking about.

00:37:54.475 --> 00:37:56.935
Now folks, a demand function

00:37:56.935 --> 00:37:58.930
is a negatively sloping thing.

00:37:58.930 --> 00:38:02.810
In another way, it comes like this.

00:38:02.820 --> 00:38:06.100
We call that a demand surface or demand curve.

00:38:06.100 --> 00:38:09.520
It says consumers will take more only at a lower price.

00:38:09.520 --> 00:38:11.290
That's the reason it's negatively sloping.

00:38:11.290 --> 00:38:14.020
Well, if you take these points we've got here,

00:38:14.020 --> 00:38:17.050
you can't make those lie on any demand curve

00:38:17.050 --> 00:38:21.020
unless you shift the thing every year. You see my point.

00:38:21.930 --> 00:38:25.645
You move in down, down,

00:38:25.645 --> 00:38:29.500
and that constitute a decrease in demand for the product.

00:38:29.500 --> 00:38:31.240
It doesn't matter what product you're talking about.

00:38:31.240 --> 00:38:33.685
If you see this type of scatter plot,

00:38:33.685 --> 00:38:36.625
you don't know why demand is decreased, I grant you.

00:38:36.625 --> 00:38:39.550
It could be related to prices of competing products.

00:38:39.550 --> 00:38:41.320
It could be a change in taste.

00:38:41.320 --> 00:38:42.640
It could be lots of things,

00:38:42.640 --> 00:38:44.200
but it has decreased.

00:38:44.200 --> 00:38:47.290
Now. 1986 looks a little bit better,

00:38:47.290 --> 00:38:48.310
let's focus attention on it.

00:38:48.310 --> 00:38:52.180
Here's '85, '86 price was down again making

00:38:52.180 --> 00:38:56.965
a new record low for beef prices at retail,

00:38:56.965 --> 00:38:58.360
but we at least moved

00:38:58.360 --> 00:39:01.780
some increase in quantity at the lower price.

00:39:01.780 --> 00:39:03.970
You don't have to stretch your imagination

00:39:03.970 --> 00:39:06.130
a great deal to think maybe

00:39:06.130 --> 00:39:11.665
that '86 could lie on the same demand surface as '85.

00:39:11.665 --> 00:39:14.380
Now, if it turns out and confirms

00:39:14.380 --> 00:39:17.560
that's the case, that's very important.

00:39:17.560 --> 00:39:21.220
Because that would mean for the first time since 1979,

00:39:21.220 --> 00:39:23.545
instead of the whole surface shifting down,

00:39:23.545 --> 00:39:25.360
maybe we're just moving along

00:39:25.360 --> 00:39:28.610
the surface as the quantity changes a little bit.

00:39:28.610 --> 00:39:30.150
That would suggest that maybe

00:39:30.150 --> 00:39:31.740
demand is stabilized and you've got to

00:39:31.740 --> 00:39:32.820
stop the decline and

00:39:32.820 --> 00:39:35.415
stabilize it before you can get it increased again.

00:39:35.415 --> 00:39:38.980
That gives all due benefit

00:39:38.980 --> 00:39:40.990
to the promotion programs that we're going through,

00:39:40.990 --> 00:39:43.990
but we've got to stop the decline before we can

00:39:43.990 --> 00:39:47.545
turn it around and start to get it growing a little bit.

00:39:47.545 --> 00:39:48.820
I'm going to just cover that

00:39:48.820 --> 00:39:50.545
over and stay right with you,

00:39:50.545 --> 00:39:53.230
with a slide that

00:39:53.230 --> 00:39:56.830
shows the demand scenario for quarter 1 of '87.

00:39:56.830 --> 00:39:59.530
I've just got through talking about a scenario that

00:39:59.530 --> 00:40:02.230
makes me feel a little bit bad about the year '86,

00:40:02.230 --> 00:40:04.000
and along comes '87.

00:40:04.000 --> 00:40:06.445
I don't like the 1st quarter at all,

00:40:06.445 --> 00:40:08.695
perhaps it'll get better.

00:40:08.695 --> 00:40:11.530
But what happened is that we moved a smaller quantity per

00:40:11.530 --> 00:40:12.970
capita into consumption at

00:40:12.970 --> 00:40:15.160
a lower inflation adjusted price.

00:40:15.160 --> 00:40:17.230
Smaller quantity at a lower price

00:40:17.230 --> 00:40:19.435
to move it, not good news.

00:40:19.435 --> 00:40:21.910
Unless that pattern improves later this year,

00:40:21.910 --> 00:40:25.375
we have not seen any improvement in the demand for beef.

00:40:25.375 --> 00:40:27.055
What we had, folks,

00:40:27.055 --> 00:40:29.230
is quarter 1 say of '86.

00:40:29.230 --> 00:40:30.490
Don't let that confuse you here,

00:40:30.490 --> 00:40:33.520
as we get ready to come into quarter 2 of '87.

00:40:33.520 --> 00:40:35.470
I'd only have final data for

00:40:35.470 --> 00:40:38.080
quarter 1, we were way back here.

00:40:38.080 --> 00:40:41.830
Quarter 1 of '87 down on

00:40:41.830 --> 00:40:45.115
a smaller quantity relative to quarter 1 of '86.

00:40:45.115 --> 00:40:46.945
That doesn't prove anything yet.

00:40:46.945 --> 00:40:49.390
I would make a great big deal

00:40:49.390 --> 00:40:51.400
about one-quarter's performance.

00:40:51.400 --> 00:40:54.130
David Kenyon talked about the fact that pork prices had

00:40:54.130 --> 00:40:56.950
been considerably strong in the first half of this year.

00:40:56.950 --> 00:41:00.175
Here we've got the quarter's results for beef looking bad

00:41:00.175 --> 00:41:01.795
in the face of our 10 percent

00:41:01.795 --> 00:41:03.475
or so increase in pork prices,

00:41:03.475 --> 00:41:05.905
what should boost beef demand?

00:41:05.905 --> 00:41:09.250
These two products are competition,

00:41:09.250 --> 00:41:10.780
yes, they are substitutes, yes.

00:41:10.780 --> 00:41:12.445
Well, when the price of one is up,

00:41:12.445 --> 00:41:14.350
it should boost the demand for the other.

00:41:14.350 --> 00:41:16.780
If you look at it in that context,

00:41:16.780 --> 00:41:19.600
I really don't like what we've seen so far

00:41:19.600 --> 00:41:22.300
in the demand for beef in 1987.

00:41:22.300 --> 00:41:24.160
Now, it could get better.

00:41:24.160 --> 00:41:25.960
The price increases that

00:41:25.960 --> 00:41:27.520
we've seen and many of you are aware

00:41:27.520 --> 00:41:29.830
out there at the live animal level

00:41:29.830 --> 00:41:31.135
and the carcass beef level,

00:41:31.135 --> 00:41:33.445
really didn't get passed up through

00:41:33.445 --> 00:41:36.250
the retail until the 2nd quarter this year.

00:41:36.250 --> 00:41:38.020
It appears that in spite of

00:41:38.020 --> 00:41:39.340
these sharply higher prices at

00:41:39.340 --> 00:41:41.290
retail once they started to increase,

00:41:41.290 --> 00:41:44.500
that the movement continued to hold up reasonably well.

00:41:44.500 --> 00:41:47.470
When we get the 2nd quarter results in for this year,

00:41:47.470 --> 00:41:52.900
what I hope they will show is some decline in quantity,

00:41:52.900 --> 00:41:55.630
but coming at a rather sharp increase in price.

00:41:55.630 --> 00:41:58.030
The same scenario that Dave Kenyon talked about,

00:41:58.030 --> 00:42:01.165
having seen so far this year in pork.

00:42:01.165 --> 00:42:04.540
If we can get a fairly sharp increase in price and still

00:42:04.540 --> 00:42:06.325
move that product into consumption,

00:42:06.325 --> 00:42:07.690
that's going to look better.

00:42:07.690 --> 00:42:09.490
If it starts to backup,

00:42:09.490 --> 00:42:11.380
historically what has happened

00:42:11.380 --> 00:42:12.670
is that every time we've tried to

00:42:12.670 --> 00:42:16.480
raise the retail price of beef across to pay 67 years,

00:42:16.480 --> 00:42:19.465
the consumer said, "No," and it's backed up.

00:42:19.465 --> 00:42:21.070
I'll come back to this point a little

00:42:21.070 --> 00:42:22.435
bit latter to presentation.

00:42:22.435 --> 00:42:25.000
But the retail price of beef has not been

00:42:25.000 --> 00:42:27.580
outside of a range on average for the year,

00:42:27.580 --> 00:42:32.200
$2.30- $2.50 since 1979.

00:42:32.200 --> 00:42:37.510
Was only about $2.31 on average for 1986.

00:42:37.510 --> 00:42:40.420
If you start talking about much of

00:42:40.420 --> 00:42:42.940
an increase at retail and start

00:42:42.940 --> 00:42:44.980
wondering whether you'll make that happen so you can get

00:42:44.980 --> 00:42:47.935
a better price passed back down to the producer,

00:42:47.935 --> 00:42:49.570
we start running up against

00:42:49.570 --> 00:42:51.895
that barrier up around the 260 level,

00:42:51.895 --> 00:42:53.470
265 level that we've

00:42:53.470 --> 00:42:55.780
never been able to penetrate and hold before.

00:42:55.780 --> 00:42:58.135
We have to be realistic about the scenario.

00:42:58.135 --> 00:42:59.725
I don't know whether or not,

00:42:59.725 --> 00:43:02.860
we can pass price increases through at retail

00:43:02.860 --> 00:43:04.570
yet and have the consumers still

00:43:04.570 --> 00:43:06.580
take this product and walk away with it.

00:43:06.580 --> 00:43:07.600
It's going to be very important,

00:43:07.600 --> 00:43:09.325
I think in the short-term price outlook,

00:43:09.325 --> 00:43:11.545
and immensely important, I think,

00:43:11.545 --> 00:43:13.030
in terms of the long-term strategies

00:43:13.030 --> 00:43:15.085
that we're going to talk about in just a little bit.

00:43:15.085 --> 00:43:19.420
I come back and walk through on this slide,

00:43:19.420 --> 00:43:22.900
an analysis similar to what Dave just went through.

00:43:22.900 --> 00:43:24.460
I use a little bit different approach,

00:43:24.460 --> 00:43:25.690
he used the price flexibility

00:43:25.690 --> 00:43:27.145
approach, it doesn't matter.

00:43:27.145 --> 00:43:29.920
I want to take a look with you,

00:43:29.920 --> 00:43:32.140
at what would happen if we are in

00:43:32.140 --> 00:43:34.645
fact on at least the same demand surface,

00:43:34.645 --> 00:43:36.340
the same strength of demand,

00:43:36.340 --> 00:43:37.510
the same level of demand,

00:43:37.510 --> 00:43:41.560
if you will folks, in 1987 as in 1986.

00:43:41.560 --> 00:43:43.240
Then if we get, for example,

00:43:43.240 --> 00:43:45.760
a five percent decrease in per capita supplies,

00:43:45.760 --> 00:43:47.125
I'm not sure we'll get that much,

00:43:47.125 --> 00:43:49.840
but to illustrate, that should increase

00:43:49.840 --> 00:43:55.630
retail prices by about 10 percent.

00:43:55.630 --> 00:43:57.730
That's a little framework here and again,

00:43:57.730 --> 00:43:59.845
I don't want to get you bogged down in numbers,

00:43:59.845 --> 00:44:01.480
but this thing over here,

00:44:01.480 --> 00:44:04.615
instead of a flexibility that they worked with,

00:44:04.615 --> 00:44:07.000
is an elasticity coefficient.

00:44:07.000 --> 00:44:08.380
If the name bothers you,

00:44:08.380 --> 00:44:09.685
don't worry a great deal about it.

00:44:09.685 --> 00:44:12.040
What it is, is a historical relationship

00:44:12.040 --> 00:44:13.630
that tells us how changes in

00:44:13.630 --> 00:44:15.700
quantity tend to relate one to

00:44:15.700 --> 00:44:18.445
the other and they tend to go in opposite directions.

00:44:18.445 --> 00:44:22.929
Now we know that historically that's about minus 0.5.

00:44:22.929 --> 00:44:26.290
In other words, a one percent increase in quantity would

00:44:26.290 --> 00:44:29.815
drive price down two percent, or vice versa.

00:44:29.815 --> 00:44:31.300
A one percent decrease in

00:44:31.300 --> 00:44:33.820
quantity would drive price up two percent.

00:44:33.820 --> 00:44:40.150
If we take this possibly five percent decrease

00:44:40.150 --> 00:44:42.160
in per capita consumption I'm talking about,

00:44:42.160 --> 00:44:43.720
set that equal to that minus

00:44:43.720 --> 00:44:46.795
0.5 and solve for the price change,

00:44:46.795 --> 00:44:50.875
it's here, a 10 percent increase in price.

00:44:50.875 --> 00:44:52.990
Now, I'm going to stay with you just a moment on

00:44:52.990 --> 00:44:55.375
this one because this is interesting.

00:44:55.375 --> 00:44:57.610
If we are on the same demand plane

00:44:57.610 --> 00:44:59.875
in '87 as we were in '86,

00:44:59.875 --> 00:45:02.785
we got a retail price of beef

00:45:02.785 --> 00:45:06.520
of 70.2 cents on average for 1986.

00:45:06.520 --> 00:45:11.260
If we inflate that by 10 percent,

00:45:11.260 --> 00:45:15.170
we're up to 77.22 cents per pound.

00:45:15.170 --> 00:45:17.790
Now that's one of those numbers

00:45:17.790 --> 00:45:19.770
that's in inflation-adjusted terms,

00:45:19.770 --> 00:45:22.320
so we got to take that and multiply it by

00:45:22.320 --> 00:45:26.055
the consumer price index that I expect for '87.

00:45:26.055 --> 00:45:27.665
Don't let me lose you here.

00:45:27.665 --> 00:45:30.610
All I'm doing is putting this number

00:45:30.610 --> 00:45:34.284
back up in the terms that you will recognize during '87,

00:45:34.284 --> 00:45:37.240
and boy, I think that's important.

00:45:37.240 --> 00:45:39.940
That says if we do in fact

00:45:39.940 --> 00:45:41.860
get a five percent reduction in per capita

00:45:41.860 --> 00:45:45.670
consumption during 1987 and if in fact,

00:45:45.670 --> 00:45:47.860
this historical relationship holds,

00:45:47.860 --> 00:45:53.215
we should see a retail price of 264 on average for 1987.

00:45:53.215 --> 00:45:54.775
We have not seen

00:45:54.775 --> 00:45:58.690
the retail beef price average above 250 ever.

00:45:58.690 --> 00:46:01.840
It has been totally constrained in

00:46:01.840 --> 00:46:06.565
that 230-250 range that I mentioned since 1979.

00:46:06.565 --> 00:46:08.905
We've got to break out to the top side,

00:46:08.905 --> 00:46:10.570
we've got to have a consumer that's

00:46:10.570 --> 00:46:12.220
willing to take a product at

00:46:12.220 --> 00:46:14.710
a higher price than they've been willing to take it

00:46:14.710 --> 00:46:17.740
in the past if we're going to make this thing work,

00:46:17.740 --> 00:46:19.900
and we're going to be able to improve

00:46:19.900 --> 00:46:22.510
the profitability down at the producer level.

00:46:22.510 --> 00:46:24.130
It's not at all clear to me

00:46:24.130 --> 00:46:26.110
yet that it's going to happen.

00:46:26.110 --> 00:46:28.030
It's not at all clear to me yet that we

00:46:28.030 --> 00:46:29.890
really have seen any appreciable,

00:46:29.890 --> 00:46:33.925
substantial turnaround in the demand side for beef.

00:46:33.925 --> 00:46:35.980
It's going to take more time, hopefully,

00:46:35.980 --> 00:46:38.110
the situation will become

00:46:38.110 --> 00:46:39.610
clear as we go on through the year,

00:46:39.610 --> 00:46:42.370
but I bring this point up because I do think it has

00:46:42.370 --> 00:46:45.085
to be brought into our decisions on pricing,

00:46:45.085 --> 00:46:46.780
our decisions on investment strategies,

00:46:46.780 --> 00:46:49.280
and so forth as we look down the road.

00:46:49.740 --> 00:46:52.210
Come back and talk to you a little bit about

00:46:52.210 --> 00:46:55.105
short-run price strategies now in this particular slide.

00:46:55.105 --> 00:46:57.910
I told you when I started that I tried to do some things

00:46:57.910 --> 00:46:59.080
with you in both the short-run

00:46:59.080 --> 00:47:01.520
and the long-range context.

00:47:02.130 --> 00:47:04.855
I'll just let you read this with me,

00:47:04.855 --> 00:47:06.790
I think that the feeder cattle is going to be

00:47:06.790 --> 00:47:07.930
the strongest market as we

00:47:07.930 --> 00:47:09.880
move into the fall and winter months.

00:47:09.880 --> 00:47:12.100
I would get the fall feeder cattle priced

00:47:12.100 --> 00:47:13.915
on a break of the trend line on the charts.

00:47:13.915 --> 00:47:15.880
I'm going to show you that in just a moment.

00:47:15.880 --> 00:47:17.590
But let me go on through and look at

00:47:17.590 --> 00:47:19.795
fed cattle and we'll look at the charts for both.

00:47:19.795 --> 00:47:21.400
Fed cattle is going to be hurt by

00:47:21.400 --> 00:47:22.825
expansion in hogs and poultry.

00:47:22.825 --> 00:47:23.980
We're going to get a 20 percent

00:47:23.980 --> 00:47:25.630
increase in turkey this year.

00:47:25.630 --> 00:47:28.495
Close to 10 percent increase in broilers,

00:47:28.495 --> 00:47:30.175
other types of poultry.

00:47:30.175 --> 00:47:31.750
Dave has documented

00:47:31.750 --> 00:47:33.325
the expansion that's going on in hogs.

00:47:33.325 --> 00:47:35.005
Somewhere out toward the end of the year,

00:47:35.005 --> 00:47:36.565
and in the early 1988,

00:47:36.565 --> 00:47:38.200
we could be looking at something

00:47:38.200 --> 00:47:40.075
approaching record total meat supplies.

00:47:40.075 --> 00:47:41.440
That's not the type of

00:47:41.440 --> 00:47:43.720
scenario in which you get very strong prices.

00:47:43.720 --> 00:47:47.260
I think price surges to the mid-'60s in the fall and

00:47:47.260 --> 00:47:49.090
winter contracts ought to be

00:47:49.090 --> 00:47:51.730
viewed as pricing opportunities.

00:47:51.730 --> 00:47:55.365
Let me do this with you,

00:47:55.365 --> 00:47:56.940
and I've got a chart here that

00:47:56.940 --> 00:47:58.560
I want to show you and we'll

00:47:58.560 --> 00:48:00.045
come in on this a little bit

00:48:00.045 --> 00:48:01.740
and get us a little bit more detail,

00:48:01.740 --> 00:48:03.975
a little bit more scale as I put it in the middle.

00:48:03.975 --> 00:48:08.290
This is October feeder cattle that I've got for you.

00:48:08.430 --> 00:48:11.125
Talking about a nice uptrend,

00:48:11.125 --> 00:48:13.780
we saw it on the hog charts a few minutes ago and boy,

00:48:13.780 --> 00:48:16.015
we really have it on this particular chart.

00:48:16.015 --> 00:48:17.800
I would suggest that we come in

00:48:17.800 --> 00:48:19.720
here on this particular chart.

00:48:19.720 --> 00:48:21.355
This is the October feeder cattle,

00:48:21.355 --> 00:48:23.890
hook up this low from way back in

00:48:23.890 --> 00:48:28.150
March with this low from late May,

00:48:28.150 --> 00:48:30.355
draw that trend line,

00:48:30.355 --> 00:48:32.590
sit back and relax.

00:48:32.590 --> 00:48:34.510
Notice what the market's doing the

00:48:34.510 --> 00:48:36.235
last few days. It's up here.

00:48:36.235 --> 00:48:38.245
Here's 72, here's 70.

00:48:38.245 --> 00:48:41.380
The market is up here in the 71-plus arena.

00:48:41.380 --> 00:48:44.080
It would be hard to go wrong in this market.

00:48:44.080 --> 00:48:45.430
If it continues to rally,

00:48:45.430 --> 00:48:48.490
one approach you could take is just the forward price,

00:48:48.490 --> 00:48:49.750
these forward feeder cattle on what I

00:48:49.750 --> 00:48:51.085
call a scale-up basis.

00:48:51.085 --> 00:48:52.945
In other words, if you got some numbers,

00:48:52.945 --> 00:48:54.220
forward price products, if

00:48:54.220 --> 00:48:56.245
your price goes up, price them more.

00:48:56.245 --> 00:48:58.210
Another alternative and this

00:48:58.210 --> 00:48:59.440
would probably be more appropriate for

00:48:59.440 --> 00:49:00.820
the smaller producers and we've got a lot

00:49:00.820 --> 00:49:02.710
of those in the state and around;

00:49:02.710 --> 00:49:04.180
just watch this market.

00:49:04.180 --> 00:49:05.500
It's either got to continue to trade

00:49:05.500 --> 00:49:08.050
up or it's going to trade sideways and come

00:49:08.050 --> 00:49:09.310
over here someday and give

00:49:09.310 --> 00:49:10.630
us something like this where we

00:49:10.630 --> 00:49:11.920
get a trading lines like that

00:49:11.920 --> 00:49:13.930
and then a close below the trend line.

00:49:13.930 --> 00:49:15.685
Don't be on a fishing trip,

00:49:15.685 --> 00:49:16.960
because right there you need to get

00:49:16.960 --> 00:49:19.315
your cattle priced in a major way.

00:49:19.315 --> 00:49:21.460
That's a sell signal as long

00:49:21.460 --> 00:49:23.275
as this trend line has gone on,

00:49:23.275 --> 00:49:24.910
that's going to be, in my opinion,

00:49:24.910 --> 00:49:26.515
a major proportions once we get it.

00:49:26.515 --> 00:49:28.390
I can't tell you exactly when it's coming,

00:49:28.390 --> 00:49:30.940
but I would expect it in the next 6-8 weeks.

00:49:30.940 --> 00:49:32.470
I think it's important that we

00:49:32.470 --> 00:49:33.895
get our hands on some charts

00:49:33.895 --> 00:49:36.955
and monitor that situation and keep it in mind.

00:49:36.955 --> 00:49:39.250
Just slide that one off and come right in with

00:49:39.250 --> 00:49:41.965
the August live cattle futures.

00:49:41.965 --> 00:49:45.985
Again, we've got a good uptrend on the chart.

00:49:45.985 --> 00:49:48.400
Won't necessarily spend a lot of

00:49:48.400 --> 00:49:50.875
time drawing the trend line on there with you.

00:49:50.875 --> 00:49:52.600
Here's the $64 level,

00:49:52.600 --> 00:49:54.745
$66 level up here.

00:49:54.745 --> 00:49:58.435
We are seeing a situation in which in August,

00:49:58.435 --> 00:50:01.720
the futures market is discovering a price

00:50:01.720 --> 00:50:04.855
of around $64 in here for a cattle,

00:50:04.855 --> 00:50:08.770
and we had tops today as high as 70.5 with

00:50:08.770 --> 00:50:09.910
most of these dairy cattle in

00:50:09.910 --> 00:50:12.880
their feeding areas going at 66-69.

00:50:12.880 --> 00:50:15.580
What's that mean? It means we're going to have more of

00:50:15.580 --> 00:50:16.870
those cattle that have been backing up

00:50:16.870 --> 00:50:18.160
in a feedlot in just a little bit,

00:50:18.160 --> 00:50:19.270
they're not overfed, but

00:50:19.270 --> 00:50:21.070
the numbers are starting to pile up a little bit.

00:50:21.070 --> 00:50:22.750
We'll have more of those come in in August,

00:50:22.750 --> 00:50:24.220
we'll have more of the hogs coming.

00:50:24.220 --> 00:50:25.960
the poultry is going to be coming,

00:50:25.960 --> 00:50:28.030
so the market I think is correct,

00:50:28.030 --> 00:50:29.680
and discovering a price

00:50:29.680 --> 00:50:32.635
that's a bit lower than our current cash price.

00:50:32.635 --> 00:50:35.080
Those August cattle across those highs that

00:50:35.080 --> 00:50:37.795
we just saw there ought to be forward priced.

00:50:37.795 --> 00:50:40.930
I'm going to put up a December '87 live cattle contract

00:50:40.930 --> 00:50:42.580
also because many of you who might

00:50:42.580 --> 00:50:44.755
have a pen of cattle on feed,

00:50:44.755 --> 00:50:46.540
might be interested in what the situation

00:50:46.540 --> 00:50:48.595
is for fall and for winter.

00:50:48.595 --> 00:50:52.720
This one again, $64 level here and notice,

00:50:52.720 --> 00:50:54.790
it has spent considerable amount of time across

00:50:54.790 --> 00:50:58.360
the past several weeks between 64 and 62.

00:50:58.360 --> 00:51:00.010
I would certainly think

00:51:00.010 --> 00:51:01.960
that any rally back up toward this

00:51:01.960 --> 00:51:04.150
$64 high this year ought to

00:51:04.150 --> 00:51:06.670
be construed as a forward pricing opportunity.

00:51:06.670 --> 00:51:09.190
If I had pins of cattle coming out early in the November,

00:51:09.190 --> 00:51:10.570
early December period, I

00:51:10.570 --> 00:51:12.160
would be inclined to forward pricing.

00:51:12.160 --> 00:51:13.990
I'd remind you, you can do it directly in

00:51:13.990 --> 00:51:16.675
the futures or you can do it in the options.

00:51:16.675 --> 00:51:18.370
If you really have some strong feelings

00:51:18.370 --> 00:51:20.155
that this market is going to go on up,

00:51:20.155 --> 00:51:22.060
buying a put option of course,

00:51:22.060 --> 00:51:23.905
will set a forward price for you,

00:51:23.905 --> 00:51:25.150
and you don't have to worry about

00:51:25.150 --> 00:51:27.325
margin calls, etc., etc.

00:51:27.325 --> 00:51:30.130
I think the point is that we need to get

00:51:30.130 --> 00:51:32.410
some forward pricing done when we get

00:51:32.410 --> 00:51:33.820
the price strength on

00:51:33.820 --> 00:51:37.645
these cattle heading out into the winter months.

00:51:37.645 --> 00:51:39.790
Their poultry situation, the hog

00:51:39.790 --> 00:51:41.935
situation that's been well-documented here.

00:51:41.935 --> 00:51:44.005
The increased number of cattle on feed,

00:51:44.005 --> 00:51:46.030
the continued uncertainty about

00:51:46.030 --> 00:51:47.890
what's going on on the demand side.

00:51:47.890 --> 00:51:51.580
I think in that type of uncertain arena is

00:51:51.580 --> 00:51:53.350
the time to get some pricing established and

00:51:53.350 --> 00:51:55.585
not be a cash market speculator.

00:51:55.585 --> 00:51:58.600
Let me come back to this last slide and I'll finish with

00:51:58.600 --> 00:51:59.830
this one in terms of looking at

00:51:59.830 --> 00:52:02.390
some long-run strategies with you.

00:52:02.470 --> 00:52:04.880
I think it's important that we

00:52:04.880 --> 00:52:07.190
understand that expansion tends to be

00:52:07.190 --> 00:52:08.930
self-supporting in the sense that it

00:52:08.930 --> 00:52:11.600
pulls heifers out of the slaughter mix,

00:52:11.600 --> 00:52:14.315
cuts the tonnage of beef, and boost prices.

00:52:14.315 --> 00:52:16.820
It's very very important that you

00:52:16.820 --> 00:52:19.430
think with me about the fact that

00:52:19.430 --> 00:52:21.770
expansion cannot last and cannot be

00:52:21.770 --> 00:52:25.310
sustained unless the demand is there to support it.

00:52:25.310 --> 00:52:27.650
I'm not at all sure that we have

00:52:27.650 --> 00:52:29.645
that type of strength on the demand side yet.

00:52:29.645 --> 00:52:31.100
What I'm suggesting here,

00:52:31.100 --> 00:52:32.825
if we're going to expand,

00:52:32.825 --> 00:52:36.500
I would do it by using bred cows or bred heifers.

00:52:36.500 --> 00:52:38.420
What I'm talking about here is something

00:52:38.420 --> 00:52:40.430
that's going to turn a sellable inventory

00:52:40.430 --> 00:52:42.110
around more quickly than

00:52:42.110 --> 00:52:43.730
a two or three year wait period

00:52:43.730 --> 00:52:45.650
where you hold back a heifer calf,

00:52:45.650 --> 00:52:47.150
carry on through the breeding age,

00:52:47.150 --> 00:52:48.800
breed and get a calf on the ground and then you've got

00:52:48.800 --> 00:52:51.170
another 12-15 months to have something to sell.

00:52:51.170 --> 00:52:52.669
If you go and expand,

00:52:52.669 --> 00:52:54.080
do it some way that'll give you

00:52:54.080 --> 00:52:56.420
a fairly quick turn around is what I'm suggesting here.

00:52:56.420 --> 00:53:00.125
I would be ready to forward price all the profits.

00:53:00.125 --> 00:53:02.240
The market is going to give you

00:53:02.240 --> 00:53:05.420
periodically an opportunity to forward price at a profit.

00:53:05.420 --> 00:53:07.775
Be prepared and take it.

00:53:07.775 --> 00:53:11.420
I would watch the big long-term investments.

00:53:11.420 --> 00:53:14.960
What I'm saying here is that I'm concerned about getting

00:53:14.960 --> 00:53:18.665
heavily in debt to expand in the cattle business,

00:53:18.665 --> 00:53:20.420
assuming that we're going to go back through

00:53:20.420 --> 00:53:23.270
a boom period of six to eight years of herd building.

00:53:23.270 --> 00:53:24.920
I don't think it's in the cards.

00:53:24.920 --> 00:53:26.480
Unless the demand side improves.

00:53:26.480 --> 00:53:29.105
I know it's not in the cards, so be careful.

00:53:29.105 --> 00:53:31.490
I'm suggesting that we increasingly,

00:53:31.490 --> 00:53:32.570
as we change things,

00:53:32.570 --> 00:53:34.970
that we move toward cattle in demand.

00:53:34.970 --> 00:53:36.830
The point there is that let's

00:53:36.830 --> 00:53:38.660
produce the type of cattle that somebody

00:53:38.660 --> 00:53:40.250
wants and the stock of

00:53:40.250 --> 00:53:42.830
programs and feedlot complexes around the country.

00:53:42.830 --> 00:53:45.935
We are not necessarily doing that in the state.

00:53:45.935 --> 00:53:48.200
If we go through a period of a little bit of

00:53:48.200 --> 00:53:50.630
change and adjustment transition, by all means,

00:53:50.630 --> 00:53:52.910
let's come out of it with a type of cattle that

00:53:52.910 --> 00:53:55.940
somebody wants and wants to pay as a premium for.

00:53:55.940 --> 00:53:58.730
I'd glad to answer your questions a little bit later,

00:53:58.730 --> 00:53:59.990
so keep them in mind.

00:53:59.990 --> 00:54:01.820
We're going to bring Bruce up and talk

00:54:01.820 --> 00:54:04.190
a little bit more about cattle marketing strategies.

00:54:04.190 --> 00:54:13.490
[NOISE]

00:54:13.490 --> 00:54:14.930
Thank you, Dr. Purcell.

00:54:14.930 --> 00:54:18.020
It's quite an honor

00:54:18.020 --> 00:54:21.125
to follow Dr. Kenyon and Dr. Purcell into this program.

00:54:21.125 --> 00:54:22.010
We're going to talk

00:54:22.010 --> 00:54:25.130
about more applied livestock marketing,

00:54:25.130 --> 00:54:26.840
something more in the line of what

00:54:26.840 --> 00:54:29.880
many of our Virginia producers are facing.

00:54:31.240 --> 00:54:33.770
As an economist, I'm forced

00:54:33.770 --> 00:54:35.390
to make some assumptions and I'm going to make

00:54:35.390 --> 00:54:38.945
one assumption tonight that is going to carry through.

00:54:38.945 --> 00:54:41.180
The assumption, I think is pretty simple,

00:54:41.180 --> 00:54:43.100
is that you as a producer want to

00:54:43.100 --> 00:54:45.260
sell your animal for the most money possible.

00:54:45.260 --> 00:54:47.915
You want to sell them all for as much money as possible.

00:54:47.915 --> 00:54:49.760
With that assumption in mind,

00:54:49.760 --> 00:54:53.000
which I think is fairly safe, I'll continue on.

00:54:53.000 --> 00:54:55.520
The producer needs to

00:54:55.520 --> 00:54:57.575
know what he's doing and what he's selling.

00:54:57.575 --> 00:55:00.695
You need to be as informed as the man you're selling to.

00:55:00.695 --> 00:55:03.350
You have to be as informed as the man you're selling to,

00:55:03.350 --> 00:55:05.900
or you won't be able to get a good job done of marketing.

00:55:05.900 --> 00:55:08.150
You're available to be

00:55:08.150 --> 00:55:10.085
taken if you're really not aware of what's going on.

00:55:10.085 --> 00:55:11.390
The first thing you need to do

00:55:11.390 --> 00:55:12.500
to get that job done to get

00:55:12.500 --> 00:55:15.815
the most money possible is selling good competitive bids.

00:55:15.815 --> 00:55:17.990
A lot of producers aren't getting competitive bids.

00:55:17.990 --> 00:55:19.340
You're selling to an individual,

00:55:19.340 --> 00:55:21.365
it comes in the gate and offers you a decent price,

00:55:21.365 --> 00:55:23.060
for what you think is a decent price.

00:55:23.060 --> 00:55:25.295
It may be $2 higher than last year,

00:55:25.295 --> 00:55:26.510
and the rest of the world may be

00:55:26.510 --> 00:55:28.415
trading at $5- $10 higher.

00:55:28.415 --> 00:55:30.575
You need competitive bids.

00:55:30.575 --> 00:55:33.395
That's a primary and fundamental important thing

00:55:33.395 --> 00:55:35.195
to get that job done.

00:55:35.195 --> 00:55:37.910
You need to be able to get competitive bids.

00:55:37.910 --> 00:55:39.200
You have to sell something

00:55:39.200 --> 00:55:41.195
that the buyers are looking for.

00:55:41.195 --> 00:55:42.860
What are the buyers looking for?

00:55:42.860 --> 00:55:45.050
On this slide, we're going to show you,

00:55:45.050 --> 00:55:46.280
the buyers are looking for

00:55:46.280 --> 00:55:48.890
load lots, looking for uniformity.

00:55:48.890 --> 00:55:50.240
The majority of the feeder cattle in

00:55:50.240 --> 00:55:52.100
Virginia move out of state.

00:55:52.100 --> 00:55:54.080
They move out of state in surmise.

00:55:54.080 --> 00:55:57.320
Those surmise offer 45,000-48,000 pounds of cattle.

00:55:57.320 --> 00:55:59.840
Those feedlots that those cattle are going

00:55:59.840 --> 00:56:02.030
to want uniformity because

00:56:02.030 --> 00:56:03.695
they want to get those cattle in the lot,

00:56:03.695 --> 00:56:06.095
get them fed, and get them sold one time.

00:56:06.095 --> 00:56:07.730
They don't want to fool around selling them over

00:56:07.730 --> 00:56:09.605
three or four weeks or two or three months.

00:56:09.605 --> 00:56:11.930
They want feeder cattle that are going to meet

00:56:11.930 --> 00:56:13.190
the demands of the slaughter cattle

00:56:13.190 --> 00:56:14.570
market they're working with.

00:56:14.570 --> 00:56:17.480
For Dr. Purcell was alluding to is we

00:56:17.480 --> 00:56:18.920
need to produce something

00:56:18.920 --> 00:56:20.390
that the buyer is going to want.

00:56:20.390 --> 00:56:21.890
The buyer is going to want something that will

00:56:21.890 --> 00:56:24.050
meet the slaughter cattle market demands.

00:56:24.050 --> 00:56:27.515
What drives the slaughter market?

00:56:27.515 --> 00:56:30.260
The consumer market. What the consumer is

00:56:30.260 --> 00:56:33.320
after drives that market that he's working on.

00:56:33.320 --> 00:56:35.780
We, as a cow-calf producer or as a stock operator,

00:56:35.780 --> 00:56:37.940
have to function and produce something

00:56:37.940 --> 00:56:40.760
to satisfy the slaughter cattle feeder.

00:56:40.760 --> 00:56:42.695
But he has to satisfy the consumer.

00:56:42.695 --> 00:56:45.620
The consumer wants USDA choice beef.

00:56:45.620 --> 00:56:47.900
But there's been a lot of discussions about

00:56:47.900 --> 00:56:50.360
the demands for lean beef and that's all right,

00:56:50.360 --> 00:56:51.725
but they still want choice beef.

00:56:51.725 --> 00:56:53.240
They don't want the outside fat.

00:56:53.240 --> 00:56:55.400
They don't want intramuscular seen fat,

00:56:55.400 --> 00:56:58.115
the fat that's in between the muscle fibers.

00:56:58.115 --> 00:57:00.410
They want a 600 to 800 pound carcass.

00:57:00.410 --> 00:57:01.610
The reason we're looking for

00:57:01.610 --> 00:57:03.740
600 to 800 pound carcass is that gives us

00:57:03.740 --> 00:57:06.005
a steak that's a reasonable size

00:57:06.005 --> 00:57:07.760
that a housewife would want to buy,

00:57:07.760 --> 00:57:09.500
the consumer would want to buy.

00:57:09.500 --> 00:57:11.900
Keep that in mind that 600 to 800 pounds

00:57:11.900 --> 00:57:13.415
situation that we're looking for,

00:57:13.415 --> 00:57:16.535
that that slaughter market is after.

00:57:16.535 --> 00:57:19.565
They want USDA yield two or three carcass,

00:57:19.565 --> 00:57:21.425
one that's as trim as possible,

00:57:21.425 --> 00:57:23.450
one that will give us something to do.

00:57:23.450 --> 00:57:25.010
As a producer in Virginia,

00:57:25.010 --> 00:57:27.094
we have several marketing alternatives.

00:57:27.094 --> 00:57:29.885
You can sell your cattle direct as I've said.

00:57:29.885 --> 00:57:31.550
That requires that you be on top of

00:57:31.550 --> 00:57:33.770
the market as much as the man you're dealing with,

00:57:33.770 --> 00:57:35.060
you need to know what's going on.

00:57:35.060 --> 00:57:37.790
To sell direct, you need a load lot of cattle.

00:57:37.790 --> 00:57:40.280
That man wants to buy a bunch of cattle,

00:57:40.280 --> 00:57:41.810
put them on a truck and ship them home,

00:57:41.810 --> 00:57:43.040
get them on feed as quickly as

00:57:43.040 --> 00:57:44.930
possible so that they're as healthy as possible.

00:57:44.930 --> 00:57:46.670
He's got his little money tied up and

00:57:46.670 --> 00:57:48.395
getting those cattle acquired as you can get done.

00:57:48.395 --> 00:57:49.925
You can sell to order buyers.

00:57:49.925 --> 00:57:52.385
Order buyers work for the buyer,

00:57:52.385 --> 00:57:54.065
they draw commissioner fee.

00:57:54.065 --> 00:57:56.480
You have to be as on your toes or more

00:57:56.480 --> 00:57:57.710
so when you deal with order buyer

00:57:57.710 --> 00:57:59.225
than you do when you're dealing directly.

00:57:59.225 --> 00:58:01.160
The things that come in dealing directly,

00:58:01.160 --> 00:58:02.960
you're dealing with order buyers is you've got

00:58:02.960 --> 00:58:05.615
to make sure you're getting competitive bids.

00:58:05.615 --> 00:58:08.855
Another alternative is to sell at a local auction market.

00:58:08.855 --> 00:58:12.575
Virginia has over 40 local auction markets.

00:58:12.575 --> 00:58:14.600
It's a lot of markets. Everybody's got one

00:58:14.600 --> 00:58:16.880
near his backyard if it's not in the backyard.

00:58:16.880 --> 00:58:19.250
The thing that you can't get in some

00:58:19.250 --> 00:58:21.470
of the markets is a good competitive bid

00:58:21.470 --> 00:58:23.000
because they don't have sufficient numbers of

00:58:23.000 --> 00:58:26.120
cattle to really draw good buying power.

00:58:26.120 --> 00:58:27.860
Quite a few of our markets do a good job

00:58:27.860 --> 00:58:29.030
in their regular weekly sales,

00:58:29.030 --> 00:58:30.500
particularly in the peak seasons,

00:58:30.500 --> 00:58:32.210
of moving a fair amount of cattle

00:58:32.210 --> 00:58:34.220
and getting competitive bids on those cattle.

00:58:34.220 --> 00:58:37.160
The last situation we've got and one I'm going to spend

00:58:37.160 --> 00:58:40.715
some time talking about tonight are cooperative sales.

00:58:40.715 --> 00:58:42.680
Virginia has been selling

00:58:42.680 --> 00:58:45.455
cattle cooperatively for 50 years.

00:58:45.455 --> 00:58:48.740
We've sold over 3 million herd of cattle for

00:58:48.740 --> 00:58:50.360
nearly a billion dollars

00:58:50.360 --> 00:58:52.685
in that time span and it's worked.

00:58:52.685 --> 00:58:55.535
Cooperative sales work because we sell uniformity.

00:58:55.535 --> 00:58:57.230
We try to sell and sort cattle in

00:58:57.230 --> 00:58:59.900
load lots to make that situation work.

00:58:59.900 --> 00:59:01.850
Cooperative sales work because

00:59:01.850 --> 00:59:03.785
they satisfy a producer needs.

00:59:03.785 --> 00:59:05.825
We're going into this next slide.

00:59:05.825 --> 00:59:08.270
One of the big reasons for the history of

00:59:08.270 --> 00:59:11.405
success is reputation of the graded sales.

00:59:11.405 --> 00:59:12.920
When an animal is graded by

00:59:12.920 --> 00:59:15.530
a Virginia Department of Agriculture grader,

00:59:15.530 --> 00:59:17.270
he puts a grade on that animal,

00:59:17.270 --> 00:59:20.120
the buyer is assured when that animal walks off

00:59:20.120 --> 00:59:21.260
the truck that that's in fact

00:59:21.260 --> 00:59:23.015
what sort of animal he's going to see.

00:59:23.015 --> 00:59:24.665
I'm going to discuss the grades in a minute.

00:59:24.665 --> 00:59:27.020
Our reputation's on the line and we've

00:59:27.020 --> 00:59:29.495
maintained our reputation in this situation.

00:59:29.495 --> 00:59:33.410
The buyers are satisfied in co-operative sales efforts.

00:59:33.410 --> 00:59:36.185
The sales have worked because buyers keep coming back.

00:59:36.185 --> 00:59:37.340
If the buyers didn't come back,

00:59:37.340 --> 00:59:38.795
we wouldn't get the prices we get,

00:59:38.795 --> 00:59:40.760
we wouldn't get the $3 to $8 over what

00:59:40.760 --> 00:59:41.810
the local markets bring or

00:59:41.810 --> 00:59:43.370
what some of the country bids are.

00:59:43.370 --> 00:59:45.590
The other thing is these cooperatives sales really

00:59:45.590 --> 00:59:48.200
serve the needs of the typical producer in Virginia.

00:59:48.200 --> 00:59:51.830
The typical cow-calf herd in the state is about 28 cows.

00:59:51.830 --> 00:59:54.080
It's real hard to get a load lot of

00:59:54.080 --> 00:59:55.670
steers and heifers out of 28 cows,

00:59:55.670 --> 00:59:57.125
it just doesn't happen.

00:59:57.125 --> 00:59:59.060
Especially when you're trying to get them all in

00:59:59.060 --> 01:00:00.860
the five weight are all in a six-week category.

01:00:00.860 --> 01:00:01.670
It won't work.

01:00:01.670 --> 01:00:05.015
When we go through the co-operative graded sales effort,

01:00:05.015 --> 01:00:07.370
your 12 steers will co-mingle with

01:00:07.370 --> 01:00:09.920
somebody else's 12 and somebody else's 15

01:00:09.920 --> 01:00:12.170
and we wind up with 60 to 100 herd of

01:00:12.170 --> 01:00:14.300
500 pound black baldy steer calves or

01:00:14.300 --> 01:00:16.700
50 herd of semi tall steer calves.

01:00:16.700 --> 01:00:18.065
We've got some uniformity,

01:00:18.065 --> 01:00:19.535
we've got some selling cloud,

01:00:19.535 --> 01:00:22.670
and the graded sales work to that benefit.

01:00:22.670 --> 01:00:25.430
That serves the typical Virginia producer,

01:00:25.430 --> 01:00:27.020
the producer that's not large enough to

01:00:27.020 --> 01:00:28.910
use a futures market layoffs and price risk.

01:00:28.910 --> 01:00:30.980
At least he can maximize what he can sell

01:00:30.980 --> 01:00:33.870
an animal for by dealing cooperatively.

01:00:33.870 --> 01:00:36.550
Let's presume that you want to

01:00:36.550 --> 01:00:38.500
consider selling an animal integrated sale.

01:00:38.500 --> 01:00:39.835
What is that process?

01:00:39.835 --> 01:00:42.100
Even though we'd been doing it for 50 years,

01:00:42.100 --> 01:00:43.900
still a lot of people don't know about it.

01:00:43.900 --> 01:00:45.430
It's still a secret to some.

01:00:45.430 --> 01:00:47.740
First, you have to consign your animals

01:00:47.740 --> 01:00:50.015
to a specific graded sale.

01:00:50.015 --> 01:00:53.420
We have 21 feeder cattle sales associations in the state,

01:00:53.420 --> 01:00:55.550
those associations have a secretary.

01:00:55.550 --> 01:00:57.170
Oftentimes that Secretary is

01:00:57.170 --> 01:00:58.010
somebody that works for

01:00:58.010 --> 01:00:59.585
the Cooperative Extension Service.

01:00:59.585 --> 01:01:01.040
You let that person know you want to

01:01:01.040 --> 01:01:02.930
consign some cattle with health sale,

01:01:02.930 --> 01:01:04.970
and they'll let you know what

01:01:04.970 --> 01:01:07.250
the health program is that that animal needs to be on.

01:01:07.250 --> 01:01:09.125
There are sets set of vaccinations,

01:01:09.125 --> 01:01:12.035
immunizations that each sale association has.

01:01:12.035 --> 01:01:13.880
That health program is one that

01:01:13.880 --> 01:01:15.470
again helps build

01:01:15.470 --> 01:01:17.795
our reputation, it's worked in the past.

01:01:17.795 --> 01:01:19.999
Once those cattle are consigned,

01:01:19.999 --> 01:01:22.085
you deliver them the day of the sale,

01:01:22.085 --> 01:01:23.960
or maybe the day before to

01:01:23.960 --> 01:01:26.900
that local sale barn is cooperating in that graded sale.

01:01:26.900 --> 01:01:28.520
When those cattle are delivered,

01:01:28.520 --> 01:01:31.835
if you go onto this slide,

01:01:31.835 --> 01:01:33.425
on arrival are tagged.

01:01:33.425 --> 01:01:34.640
Each animal is individually

01:01:34.640 --> 01:01:36.125
tagged when they get off the truck.

01:01:36.125 --> 01:01:39.050
He's graded, I'm going to go through the grades in

01:01:39.050 --> 01:01:40.340
a couple of minutes on what

01:01:40.340 --> 01:01:42.275
is done in that grading process.

01:01:42.275 --> 01:01:44.975
He's graded for frame score and muscle score,

01:01:44.975 --> 01:01:47.330
tells us how much he's going to weigh

01:01:47.330 --> 01:01:50.015
we think when he's slaughtered.

01:01:50.015 --> 01:01:51.890
The animal is individually weighed,

01:01:51.890 --> 01:01:53.015
and then he is penned.

01:01:53.015 --> 01:01:54.530
He is penned with other steers

01:01:54.530 --> 01:01:56.105
of the same weight or heifers,

01:01:56.105 --> 01:01:59.000
the same breed, same muscle score,

01:01:59.000 --> 01:02:01.175
same thickness, same frame size.

01:02:01.175 --> 01:02:03.650
Then he is sold either that day or the next day,

01:02:03.650 --> 01:02:06.590
and the check is drawn directly to you from the market.

01:02:06.590 --> 01:02:08.150
You may have 10 steers and they

01:02:08.150 --> 01:02:09.875
wind up in 10 different sale lots.

01:02:09.875 --> 01:02:11.930
The idea being is that each animal is bought the

01:02:11.930 --> 01:02:14.990
maximum possible when he was sold.

01:02:14.990 --> 01:02:19.100
I'm going to go over on these next series of slides,

01:02:19.100 --> 01:02:21.185
some of the grading that goes on.

01:02:21.185 --> 01:02:24.395
The Department of Agriculture graze these cattle.

01:02:24.395 --> 01:02:25.880
They put large, medium,

01:02:25.880 --> 01:02:28.700
or small frame or extra small frame scores on

01:02:28.700 --> 01:02:29.810
the cattle and they put

01:02:29.810 --> 01:02:32.285
a muscle score on the animals one, two, or three.

01:02:32.285 --> 01:02:34.430
These grades are accepted by

01:02:34.430 --> 01:02:36.320
the USDA as pretty much as standard.

01:02:36.320 --> 01:02:38.825
They give us a means of communication.

01:02:38.825 --> 01:02:40.910
When somebody says, what kind of steer is it?

01:02:40.910 --> 01:02:42.110
Well, if you say they're pretty good,

01:02:42.110 --> 01:02:43.175
that doesn't say much.

01:02:43.175 --> 01:02:44.900
If we say is a large frame,

01:02:44.900 --> 01:02:46.130
number one muscle steer,

01:02:46.130 --> 01:02:48.200
people have an idea of what's there.

01:02:48.200 --> 01:02:50.525
This drawing is pretty much

01:02:50.525 --> 01:02:53.795
illustrative of the thickness,

01:02:53.795 --> 01:02:57.725
the frame score of a number of a large frame steer,

01:02:57.725 --> 01:03:00.410
large frame steer is one that is expected to

01:03:00.410 --> 01:03:04.280
grade choice when he weighs something over 1,200 pounds.

01:03:04.280 --> 01:03:05.990
When we say choice, that means we

01:03:05.990 --> 01:03:07.580
expect him to have a half-inch,

01:03:07.580 --> 01:03:09.140
a back fat at the 12th rib

01:03:09.140 --> 01:03:10.850
under normal feeding conditions.

01:03:10.850 --> 01:03:12.635
It's just a general idea.

01:03:12.635 --> 01:03:15.110
Quite a few of our exotic cattle, Simmental,

01:03:15.110 --> 01:03:16.460
Maine Anjou, Limousin, and so

01:03:16.460 --> 01:03:19.445
forth fit into this large frame category.

01:03:19.445 --> 01:03:22.490
Large frame Heifers are expected to

01:03:22.490 --> 01:03:23.900
grade choice when they weigh 1,000

01:03:23.900 --> 01:03:25.865
pounds or more, they're a little different.

01:03:25.865 --> 01:03:28.460
The market, remember I said we are looking for

01:03:28.460 --> 01:03:31.175
cattle that weigh 6 to 800 pounds in a carcass,

01:03:31.175 --> 01:03:33.410
which means we need a live animal weighing

01:03:33.410 --> 01:03:35.945
somewhere between 1,000 and 1,300 pounds.

01:03:35.945 --> 01:03:40.295
The upper end of most large frame cattle don't fit.

01:03:40.295 --> 01:03:42.530
We need them under 1,300 pounds.

01:03:42.530 --> 01:03:43.760
They don't fit necessarily what

01:03:43.760 --> 01:03:46.460
the packer's really looking for,

01:03:46.460 --> 01:03:47.480
you need to keep that in mind,

01:03:47.480 --> 01:03:50.255
in your buying or breeding program.

01:03:50.255 --> 01:03:52.850
What you're buying and what's going to kill.

01:03:52.850 --> 01:03:57.230
Medium frame cattle, this a drawing of the typical,

01:03:57.230 --> 01:04:00.530
this is the minimum standards for medium frame steer.

01:04:00.530 --> 01:04:02.330
He's a little smaller, you

01:04:02.330 --> 01:04:03.350
can see he's a little chaffier,

01:04:03.350 --> 01:04:04.400
he's a little thicker steer,

01:04:04.400 --> 01:04:06.545
maybe than a large frame steer.

01:04:06.545 --> 01:04:08.390
Medium frame steers are

01:04:08.390 --> 01:04:09.860
expected to grade choice when they weigh

01:04:09.860 --> 01:04:13.025
something between a 1,000 and 1,200 pounds.

01:04:13.025 --> 01:04:15.230
Right in the middle of what the market's really looking

01:04:15.230 --> 01:04:17.750
for and the slaughter cattle carcass.

01:04:17.750 --> 01:04:19.880
A medium frame heifer on other hand

01:04:19.880 --> 01:04:21.665
is a heifer that's expected to grade choice,

01:04:21.665 --> 01:04:24.200
somewhere between 850 and a 1,000 pounds,

01:04:24.200 --> 01:04:26.660
she's a little smaller than the Steer.

01:04:26.660 --> 01:04:27.980
The market really is looking for

01:04:27.980 --> 01:04:30.170
large frame heifers, medium frame steers.

01:04:30.170 --> 01:04:31.190
We haven't found a way to put

01:04:31.190 --> 01:04:33.530
a breeding program together to get that done just yet.

01:04:33.530 --> 01:04:35.360
But there are people working on it.

01:04:35.360 --> 01:04:39.335
This next drawing is a typical small frame steer.

01:04:39.335 --> 01:04:40.820
He's a little squattier,

01:04:40.820 --> 01:04:42.590
a little chaffey, a little more old-style.

01:04:42.590 --> 01:04:44.540
He looks like some of those grand

01:04:44.540 --> 01:04:46.055
champions in the late 50s.

01:04:46.055 --> 01:04:48.230
It's not necessarily what we're looking for.

01:04:48.230 --> 01:04:50.840
A small frame steer going to grade choice,

01:04:50.840 --> 01:04:53.105
it's something under a 1,000 pounds.

01:04:53.105 --> 01:04:54.770
He's got a carcass that's smaller

01:04:54.770 --> 01:04:56.195
than what we're really looking for.

01:04:56.195 --> 01:04:57.830
Small frame cattle aren't necessarily

01:04:57.830 --> 01:04:59.855
the most economical cattle to feed,

01:04:59.855 --> 01:05:01.310
because they just don't go as

01:05:01.310 --> 01:05:02.900
fast. They don't gain as quickly.

01:05:02.900 --> 01:05:06.380
They're easy to get into the kosher crate trade market

01:05:06.380 --> 01:05:08.120
with a lot of fat but we don't

01:05:08.120 --> 01:05:10.640
have a major demand for that except up in some

01:05:10.640 --> 01:05:11.900
of the parts of Pennsylvania that we

01:05:11.900 --> 01:05:13.670
sell cattle to out of Virginia.

01:05:13.670 --> 01:05:16.030
A small frame steer

01:05:16.030 --> 01:05:18.130
I said will weigh something under a 1,000 pounds.

01:05:18.130 --> 01:05:19.870
Small frame heifers will weigh

01:05:19.870 --> 01:05:22.165
something under 850 pounds.

01:05:22.165 --> 01:05:25.635
The graders also put a double S grade on cattle.

01:05:25.635 --> 01:05:26.930
Super small are used to be

01:05:26.930 --> 01:05:28.625
called very early maturing cattle.

01:05:28.625 --> 01:05:31.070
These cattle finish at extremely lightweight.

01:05:31.070 --> 01:05:33.200
Steer's something under 900 pounds.

01:05:33.200 --> 01:05:35.285
Heifer, something under 800 pounds.

01:05:35.285 --> 01:05:37.625
Very small cattle, they're done growing.

01:05:37.625 --> 01:05:40.100
They're dwarfy, they're cattle we really aren't proud of,

01:05:40.100 --> 01:05:41.780
really aren't wanting to work with.

01:05:41.780 --> 01:05:43.610
The next set of drawings we'll look

01:05:43.610 --> 01:05:46.700
at are muscle thickness.

01:05:46.700 --> 01:05:49.235
When a grader's put a grade on an animal,

01:05:49.235 --> 01:05:51.260
they're telling you what they see visually.

01:05:51.260 --> 01:05:52.520
They're not telling you what

01:05:52.520 --> 01:05:54.320
the animal's worth, necessarily.

01:05:54.320 --> 01:05:56.315
That's still up to buyers to decide.

01:05:56.315 --> 01:05:58.775
The buyers know how these cattle perform and grades work.

01:05:58.775 --> 01:06:01.160
This is a typical number one muscle steer

01:06:01.160 --> 01:06:02.780
is a good thick steer.

01:06:02.780 --> 01:06:04.640
If you'll look, he's rounded over

01:06:04.640 --> 01:06:06.500
the top. He's thick in the front.

01:06:06.500 --> 01:06:07.670
He's thick behind. He's got some

01:06:07.670 --> 01:06:09.545
muscling over those ribs and then at loin.

01:06:09.545 --> 01:06:12.800
He's going to carry a meatier carcass,

01:06:12.800 --> 01:06:15.725
just a correlation that does exist.

01:06:15.725 --> 01:06:17.810
He's very typical of most of

01:06:17.810 --> 01:06:20.795
our beef cattle that are sold in this country.

01:06:20.795 --> 01:06:22.820
He's thicker down in the arm and

01:06:22.820 --> 01:06:25.850
the gaskin and in just a little better doing steer.

01:06:25.850 --> 01:06:27.815
This next steer that we're going to look at,

01:06:27.815 --> 01:06:30.230
is what's called a number two muscled steer.

01:06:30.230 --> 01:06:32.600
He's a little thinner, a little frailer,

01:06:32.600 --> 01:06:35.405
a little thrifty steer he's narrower in appearance.

01:06:35.405 --> 01:06:37.130
He's narrow up front and behind.

01:06:37.130 --> 01:06:38.600
He just doesn't have the muscling.

01:06:38.600 --> 01:06:41.720
A lot of our holstein type cattle fit in this number to

01:06:41.720 --> 01:06:43.250
muscle category just for

01:06:43.250 --> 01:06:45.125
an idea of what we're looking at.

01:06:45.125 --> 01:06:47.975
Number 2, muscled cattle happen two ways,

01:06:47.975 --> 01:06:50.000
either genetically or through management.

01:06:50.000 --> 01:06:52.280
Last year, when we were pretty drowsy and dry,

01:06:52.280 --> 01:06:54.875
we sold a fair amount of number 2 muscle cattle.

01:06:54.875 --> 01:06:58.115
Buyers actually paid as much as $280,

01:06:58.115 --> 01:07:00.215
108 more for number two muscles,

01:07:00.215 --> 01:07:02.525
the number one muscles to put on grass.

01:07:02.525 --> 01:07:04.520
These thinner cattle had something

01:07:04.520 --> 01:07:07.025
that buyers looked for and its compensatory gain.

01:07:07.025 --> 01:07:08.555
There were a management problem.

01:07:08.555 --> 01:07:09.920
Even though he's graded at

01:07:09.920 --> 01:07:11.855
something less than what's ideal,

01:07:11.855 --> 01:07:13.250
doesn't mean he brought less than

01:07:13.250 --> 01:07:15.815
an ideal price. Keep that in mind.

01:07:15.815 --> 01:07:17.570
The next grade that we look at in

01:07:17.570 --> 01:07:20.885
muscle thickness or the number three muscles.

01:07:20.885 --> 01:07:22.520
We don't sell in our graded

01:07:22.520 --> 01:07:25.160
sales Number three muscle calves or yearlings.

01:07:25.160 --> 01:07:26.390
We do sell number three, muscle

01:07:26.390 --> 01:07:28.040
Holsteins, and our holstein sales.

01:07:28.040 --> 01:07:30.035
He's pretty thin, he's pretty frail.

01:07:30.035 --> 01:07:31.610
You look at how painful these calves,

01:07:31.610 --> 01:07:32.780
you wonder what's wrong.

01:07:32.780 --> 01:07:34.640
They've suffered from stress

01:07:34.640 --> 01:07:36.470
or they've got some pretty poor genetics in them.

01:07:36.470 --> 01:07:37.610
They're not anything that you

01:07:37.610 --> 01:07:39.515
think you might make a lot of money on.

01:07:39.515 --> 01:07:41.330
They tend to be red flags.

01:07:41.330 --> 01:07:42.560
We don't sell these number three

01:07:42.560 --> 01:07:44.615
muscled cattle in graded sales.

01:07:44.615 --> 01:07:46.520
It's a red flag, it's something

01:07:46.520 --> 01:07:48.140
that we don't think we should promote.

01:07:48.140 --> 01:07:49.910
That's part of our reputation is,

01:07:49.910 --> 01:07:51.110
we don't sell those cattle,

01:07:51.110 --> 01:07:53.240
we don't sell stags in the graded sales.

01:07:53.240 --> 01:07:55.430
We don't sell bulls in the graded sales.

01:07:55.430 --> 01:07:57.995
Animals that don't fit our quality,

01:07:57.995 --> 01:08:00.455
don't get sold and that keeps the buyers coming back.

01:08:00.455 --> 01:08:02.900
They don't wind up with two or three bad-legged cattle

01:08:02.900 --> 01:08:04.310
or poor cattle,

01:08:04.310 --> 01:08:06.870
and that load lot of cattle that they bring in.

01:08:06.970 --> 01:08:09.560
We have several alternatives for

01:08:09.560 --> 01:08:11.885
cooperatives sales in the State of Virginia.

01:08:11.885 --> 01:08:14.345
First, I've been talking about is

01:08:14.345 --> 01:08:18.410
the foundation has been graded in barn sale.

01:08:18.410 --> 01:08:20.330
This sale started 1938

01:08:20.330 --> 01:08:22.595
and they've been going since then, doing quite well.

01:08:22.595 --> 01:08:25.610
They serve the typical small producer or

01:08:25.610 --> 01:08:26.720
the producer that doesn't have

01:08:26.720 --> 01:08:28.985
many cattle that are consistent or uniform.

01:08:28.985 --> 01:08:30.620
We also have board sales.

01:08:30.620 --> 01:08:32.960
A board sale is the sale that the cattle stayed at home,

01:08:32.960 --> 01:08:34.790
on a farm, but

01:08:34.790 --> 01:08:37.040
they were graded by the Department of Agriculture.

01:08:37.040 --> 01:08:38.630
Those grades were reported and

01:08:38.630 --> 01:08:40.340
those cattle are sold, site unseen,

01:08:40.340 --> 01:08:41.795
just on a verbal description,

01:08:41.795 --> 01:08:44.210
during a regular graded in barn sale.

01:08:44.210 --> 01:08:45.770
We've had board sales for some years

01:08:45.770 --> 01:08:47.105
now and they work quite well.

01:08:47.105 --> 01:08:48.860
Buyers that are sitting in its sale barn

01:08:48.860 --> 01:08:50.270
were by site unseen

01:08:50.270 --> 01:08:51.995
based on that verbal description

01:08:51.995 --> 01:08:53.420
and pay a good price for them.

01:08:53.420 --> 01:08:54.950
One of the reasons they pay a good price for

01:08:54.950 --> 01:08:56.780
them is they get quality.

01:08:56.780 --> 01:08:58.160
They get farm fresh cattle

01:08:58.160 --> 01:08:59.720
and that's worth something to them.

01:08:59.720 --> 01:09:02.330
The next type of sale we have is a field sale.

01:09:02.330 --> 01:09:04.655
We sell every week or every two weeks.

01:09:04.655 --> 01:09:06.020
The same as the board sale,

01:09:06.020 --> 01:09:07.790
the cattle are sold on the telephone

01:09:07.790 --> 01:09:09.545
with just verbal descriptions.

01:09:09.545 --> 01:09:12.035
That works quite well, we have those going.

01:09:12.035 --> 01:09:14.390
If you want to sell in a field sale or graded sale,

01:09:14.390 --> 01:09:16.130
get a hold of your county agent or

01:09:16.130 --> 01:09:18.305
somebody that works with the Department of Agriculture.

01:09:18.305 --> 01:09:21.015
All of the sales are done with a telephone hookup.

01:09:21.015 --> 01:09:22.570
We've had from seven to

01:09:22.570 --> 01:09:25.165
as many as 50 buyers on the telephone on onetime.

01:09:25.165 --> 01:09:27.840
Those telephone buyers give us some the buying power.

01:09:27.840 --> 01:09:30.050
You're pretty sure that you've got a competitive bid,

01:09:30.050 --> 01:09:32.300
you're getting the highest price possible when you're

01:09:32.300 --> 01:09:35.075
selling cattle and you've got 50-75 people,

01:09:35.075 --> 01:09:36.455
counting the ones in the barn,

01:09:36.455 --> 01:09:38.060
bidding on those animals.

01:09:38.060 --> 01:09:40.460
Last thing I want to mention about

01:09:40.460 --> 01:09:42.875
these alternatives are the satellites sales.

01:09:42.875 --> 01:09:44.210
This fall, we're going to try

01:09:44.210 --> 01:09:46.115
a couple of satellite sales.

01:09:46.115 --> 01:09:49.145
These sales will be held in September and October.

01:09:49.145 --> 01:09:52.144
The first will be September 14th.

01:09:52.144 --> 01:09:54.695
It'll be in the evening at 7:30.

01:09:54.695 --> 01:09:57.470
We'll have a preview that shows these cattle

01:09:57.470 --> 01:10:01.490
the evening of September 12th at 8:30 PM.

01:10:01.490 --> 01:10:02.270
You'll be able to see

01:10:02.270 --> 01:10:03.815
every lot of cattle that you can sign.

01:10:03.815 --> 01:10:06.110
These satellite sales will be just

01:10:06.110 --> 01:10:08.900
exactly the same as our field sales.

01:10:08.900 --> 01:10:10.280
The only difference will be that we'll

01:10:10.280 --> 01:10:12.125
have a video or picture,

01:10:12.125 --> 01:10:13.730
so people can see what's going on,

01:10:13.730 --> 01:10:14.780
they can see the animal as well

01:10:14.780 --> 01:10:16.190
as get the verbal description.

01:10:16.190 --> 01:10:18.740
It's a first because

01:10:18.740 --> 01:10:20.690
we haven't done this in the country anywhere with

01:10:20.690 --> 01:10:24.140
cooperative commingled type sales or satellite sales

01:10:24.140 --> 01:10:26.210
through a non-profit organizations such as

01:10:26.210 --> 01:10:28.280
the Feeder Cattle Associations running it.

01:10:28.280 --> 01:10:30.320
The first sale will be a yearling sale,

01:10:30.320 --> 01:10:32.585
a second sale will be a calf and yearling sale.

01:10:32.585 --> 01:10:34.835
They'll function the same way.

01:10:34.835 --> 01:10:37.820
I'm going to wrap up as well we get

01:10:37.820 --> 01:10:39.350
Doctors Kenyon and Purcell up

01:10:39.350 --> 01:10:41.480
here to answer some questions.

01:10:41.480 --> 01:10:42.725
If you have questions,

01:10:42.725 --> 01:10:44.390
please get on the phone call them in,

01:10:44.390 --> 01:10:47.085
we'll have time to address those.

01:10:47.085 --> 01:10:48.760
If you have any questions about

01:10:48.760 --> 01:10:50.800
the graded cooperatives sales efforts,

01:10:50.800 --> 01:10:54.885
give me a call, in proper English.

01:10:54.885 --> 01:10:57.290
Give your county agent a call, they can work with you,

01:10:57.290 --> 01:10:59.780
or one of the local Feeder Cattle Sales Associations,

01:10:59.780 --> 01:11:01.820
they can help you answer any questions

01:11:01.820 --> 01:11:04.100
that you may have about this cooperative selling.

01:11:04.100 --> 01:11:05.780
I would encourage you to think about it.

01:11:05.780 --> 01:11:07.190
We have sales in the summer.

01:11:07.190 --> 01:11:09.455
If you're trying to figure out when to sell,

01:11:09.455 --> 01:11:12.650
you can't sell the futures, you're not large enough.

01:11:12.650 --> 01:11:14.240
We have sales in the summer,

01:11:14.240 --> 01:11:15.830
we'd have whole scene sales in August,

01:11:15.830 --> 01:11:18.680
we got calf and yearling sales in early August,

01:11:18.680 --> 01:11:20.420
yearling sales in July and August.

01:11:20.420 --> 01:11:22.160
You can do some market planning and

01:11:22.160 --> 01:11:24.920
some timing and still do it in a cooperative sale.

01:11:24.920 --> 01:11:28.445
We do board sales or Tel-O-Auction sales every two weeks.

01:11:28.445 --> 01:11:30.545
There's opportunity for you to move some cattle,

01:11:30.545 --> 01:11:31.820
gets bigger cattle that gain

01:11:31.820 --> 01:11:33.215
most of the weight to go in the game,

01:11:33.215 --> 01:11:34.610
you have opportunity to sell them

01:11:34.610 --> 01:11:36.185
early before the price break,

01:11:36.185 --> 01:11:38.480
if in fact and when in fact it does come.

01:11:38.480 --> 01:11:40.415
You can plan your marketing

01:11:40.415 --> 01:11:42.080
around these graded sales

01:11:42.080 --> 01:11:43.355
and still do a good job for that.

01:11:43.355 --> 01:11:45.560
You want to step up on the platform and we can proceed

01:11:45.560 --> 01:11:48.155
on with any questions you may have?

01:11:48.155 --> 01:11:51.770
Let me emcee this while Bruce catches his breath.

01:11:51.770 --> 01:11:54.320
While we are waiting on the phone ring to

01:11:54.320 --> 01:11:57.420
come in and we've got a call, we're going to take it.

01:11:57.790 --> 01:12:08.135
Go ahead. Didn't make it through.

01:12:08.135 --> 01:12:10.460
One of the things that occurred to us as we

01:12:10.460 --> 01:12:13.250
were thinking about anticipating your calls,

01:12:13.250 --> 01:12:16.490
some of you may be aware that we've changed

01:12:16.490 --> 01:12:19.985
the delivery mechanism on feeder cattle,

01:12:19.985 --> 01:12:23.795
and that is changed the cash futures basis.

01:12:23.795 --> 01:12:26.090
David Kenyon is in good shape on that.

01:12:26.090 --> 01:12:29.120
Why don't we let him spend 30 seconds to a minute,

01:12:29.120 --> 01:12:30.890
burn quickly, and then

01:12:30.890 --> 01:12:32.180
we'll come back and take phone calls.

01:12:32.180 --> 01:12:33.800
Just telling us a little bit about how

01:12:33.800 --> 01:12:35.720
we think it's changed that basis because it

01:12:35.720 --> 01:12:39.965
is important as you anticipate for pricing your cattle.

01:12:39.965 --> 01:12:42.710
In September of '86,

01:12:42.710 --> 01:12:45.140
the futures contract for feeder cattle was

01:12:45.140 --> 01:12:48.950
changed to the average price of

01:12:48.950 --> 01:12:52.070
cattle going into feedlots across

01:12:52.070 --> 01:12:56.375
the whole US instead of being based on Oklahoma City.

01:12:56.375 --> 01:12:59.480
The net impact of that is that the futures price

01:12:59.480 --> 01:13:02.360
that you now see for feeder cattle, not fed cattle,

01:13:02.360 --> 01:13:06.945
just feeder cattle is about four dollars lower

01:13:06.945 --> 01:13:09.550
than what it used to be based on

01:13:09.550 --> 01:13:12.670
the information that we've gathered for about one year.

01:13:12.670 --> 01:13:16.600
Practically, what that means is normally,

01:13:16.600 --> 01:13:21.150
if heavy cattle, say, 700-800 pound yearlings,

01:13:21.150 --> 01:13:23.360
historically had been trading at

01:13:23.360 --> 01:13:27.265
about six dollars under futures, this year,

01:13:27.265 --> 01:13:31.165
they'll be trading only $2-$3 under futures,

01:13:31.165 --> 01:13:33.580
which makes that $71,

01:13:33.580 --> 01:13:38.115
$72 price even look better than it's looked in the past.

01:13:38.115 --> 01:13:40.670
Do we have a phone question?

01:13:40.670 --> 01:13:44.060
Call. Bring in it. I'll make

01:13:44.060 --> 01:13:45.740
somebody else answer it but come on with it.

01:13:45.740 --> 01:13:54.680
[LAUGHTER] As it say on radio and TV,

01:13:54.680 --> 01:13:56.600
folks, we're having technical problems.

01:13:56.600 --> 01:14:01.820
Hang with us. [NOISE] Here we go.

01:14:01.820 --> 01:14:03.080
Sir, I have a question.

01:14:03.080 --> 01:14:04.340
Go a head.

01:14:04.340 --> 01:14:06.980
This is Randy Shank in King William County.

01:14:06.980 --> 01:14:08.045
Yes.

01:14:08.045 --> 01:14:10.415
The question to David Kenyon.

01:14:10.415 --> 01:14:13.610
The question I'm getting this summer from

01:14:13.610 --> 01:14:17.720
small pig producers or potential small pig producers,

01:14:17.720 --> 01:14:19.430
I hear you saying that the bottom

01:14:19.430 --> 01:14:21.935
is going to fall out of the hog market.

01:14:21.935 --> 01:14:25.760
Should these people wait before

01:14:25.760 --> 01:14:27.170
they get back into

01:14:27.170 --> 01:14:29.270
the pig business if they're not in it right now?

01:14:29.270 --> 01:14:33.455
Are they a year away from producing pigs for profit?

01:14:33.455 --> 01:14:37.550
I basically have two answers to that question.

01:14:37.550 --> 01:14:42.185
One, if they have the facilities to feed feeder pigs,

01:14:42.185 --> 01:14:45.350
and they can purchase feeder pigs and

01:14:45.350 --> 01:14:47.240
forward price at current levels

01:14:47.240 --> 01:14:48.965
which are reasonably good,

01:14:48.965 --> 01:14:50.495
if they can find

01:14:50.495 --> 01:14:53.180
those feeder pigs at a price and then forward price,

01:14:53.180 --> 01:14:55.580
then they can go ahead and be in

01:14:55.580 --> 01:14:58.610
the market now without a great deal of risk.

01:14:58.610 --> 01:15:02.120
There are opportunities to get

01:15:02.120 --> 01:15:05.210
forward prices not using futures or options that is

01:15:05.210 --> 01:15:08.360
available through the Virginia Farm Bureau to get

01:15:08.360 --> 01:15:11.975
forward prices for smaller lots of hogs.

01:15:11.975 --> 01:15:14.330
That would be one opportunity

01:15:14.330 --> 01:15:18.170
for those who do have the facilities to feed feeder pigs.

01:15:18.170 --> 01:15:20.660
I would say if a person is looking at

01:15:20.660 --> 01:15:23.690
holding back gilts and breeding them,

01:15:23.690 --> 01:15:27.020
and then having those hogs to sell which will be

01:15:27.020 --> 01:15:31.010
basically 10-11 months at the least,

01:15:31.010 --> 01:15:32.840
then I would say that you're

01:15:32.840 --> 01:15:35.990
looking at selling into an environment that you

01:15:35.990 --> 01:15:37.700
may find that is

01:15:37.700 --> 01:15:40.640
very close to the cost of production by the time

01:15:40.640 --> 01:15:42.905
those hogs are ready to sell because that's going to

01:15:42.905 --> 01:15:45.995
put you into the next summer or next fall.

01:15:45.995 --> 01:15:48.350
I would anticipate that hog prices,

01:15:48.350 --> 01:15:50.495
if we follow the hog cycle at all,

01:15:50.495 --> 01:15:52.790
are going to be at

01:15:52.790 --> 01:15:56.150
considerably less profitable levels than they are now.

01:15:56.150 --> 01:15:57.890
I would not encourage

01:15:57.890 --> 01:16:01.760
strong expansion right now in the hog industry.

01:16:01.760 --> 01:16:05.330
If you look at the hog cycle, historically,

01:16:05.330 --> 01:16:08.120
if things develop as we expect,

01:16:08.120 --> 01:16:09.710
the best time to expand is going

01:16:09.710 --> 01:16:11.195
to be sometime next spring,

01:16:11.195 --> 01:16:14.180
next summer, next fall next year, not right now.

01:16:14.180 --> 01:16:15.215
Thank you.

01:16:15.215 --> 01:16:17.360
In other words, it's better to expand

01:16:17.360 --> 01:16:19.625
with $40 gilts than $60 gilts.

01:16:19.625 --> 01:16:23.100
Okay, I hear you. Thank you.

01:16:24.340 --> 01:16:31.470
Do we have other calls? Bring him on in.

01:16:35.650 --> 01:16:39.260
Will this visit a little bit here about the hog scenario?

01:16:39.260 --> 01:16:41.750
It does look as if we've got

01:16:41.750 --> 01:16:46.010
an old faithful type tendency coming back, Dave.

01:16:46.010 --> 01:16:49.040
When the hogs get to $60 and stay there for long time,

01:16:49.040 --> 01:16:50.180
everybody get itch in the feet

01:16:50.180 --> 01:16:51.650
and wants to get in hog business.

01:16:51.650 --> 01:16:54.680
You should try to resist that itch if you possibly can.

01:16:54.680 --> 01:16:57.830
It is not the time to get into the hog business right

01:16:57.830 --> 01:16:59.300
now unless you can forward

01:16:59.300 --> 01:17:01.325
price them at a profit which is what he says.

01:17:01.325 --> 01:17:03.695
Got another call coming through so if we

01:17:03.695 --> 01:17:04.610
can handle the technicalities

01:17:04.610 --> 01:17:06.930
to bring him on in.

01:17:07.360 --> 01:17:09.800
Calling from Warsaw.

01:17:09.800 --> 01:17:12.710
What is the current status of efforts to expand

01:17:12.710 --> 01:17:16.505
coordinated marketing by small herd cattle producers?

01:17:16.505 --> 01:17:21.480
An example, polling to be eligible for cattle auctioning?

01:17:21.490 --> 01:17:23.290
Do you want to repeat that?

01:17:23.290 --> 01:17:25.190
Repeat the question.

01:17:26.130 --> 01:17:29.110
Producer in Warsaw would like to know what

01:17:29.110 --> 01:17:31.970
the current status of efforts to expand

01:17:31.970 --> 01:17:35.990
coordinated marketing by small herd cattle producers

01:17:35.990 --> 01:17:37.760
is at the current time?

01:17:37.760 --> 01:17:40.010
An example of that, for instance,

01:17:40.010 --> 01:17:41.540
would be polling to be eligible

01:17:41.540 --> 01:17:45.220
for cattle auctioning with all the producers in the area.

01:17:45.220 --> 01:17:46.900
That can be done. We've done it.

01:17:46.900 --> 01:17:49.630
The question is, can three or four producers get

01:17:49.630 --> 01:17:52.545
together in seller cattle in a field auction?

01:17:52.545 --> 01:17:55.055
That can be done if you've got similar cattle,

01:17:55.055 --> 01:17:56.360
maybe two or three of you have

01:17:56.360 --> 01:17:58.010
a-half a load or a-third a load a piece.

01:17:58.010 --> 01:17:59.870
[NOISE] You can do that get with

01:17:59.870 --> 01:18:02.465
your county agent or the Cattle Association.

01:18:02.465 --> 01:18:03.650
Those cattle can be

01:18:03.650 --> 01:18:05.795
graded and then sold as a single unit,

01:18:05.795 --> 01:18:07.310
and each of you take the amount of

01:18:07.310 --> 01:18:09.320
money that your cattle would be worth.

01:18:09.320 --> 01:18:11.750
It is being done now and we'd like to

01:18:11.750 --> 01:18:14.825
expand it to accommodate those smaller producers

01:18:14.825 --> 01:18:16.250
that would like to take advantage of

01:18:16.250 --> 01:18:17.980
the ability to sell farm

01:18:17.980 --> 01:18:20.110
fresh cattle on a Tel-O-Auction system

01:18:20.110 --> 01:18:22.550
to a good set of buyers.

01:18:22.630 --> 01:18:25.025
It's just another way of getting

01:18:25.025 --> 01:18:27.020
some numbers together and making

01:18:27.020 --> 01:18:28.730
that a little bit more attracted

01:18:28.730 --> 01:18:31.500
to buyers, regrading the question.

01:18:32.470 --> 01:18:35.525
Give us the benefit of the graded sales.

01:18:35.525 --> 01:18:37.790
If Wayne had 15 or 20 head

01:18:37.790 --> 01:18:38.930
of black baldy steers that

01:18:38.930 --> 01:18:41.870
were pretty good and I had 20 head, Dr. Kenyon had 20,

01:18:41.870 --> 01:18:44.240
we could put them together into a load lot and sell them,

01:18:44.240 --> 01:18:46.220
and that's an acceptable means of going

01:18:46.220 --> 01:18:49.345
about selling some cattle and keeping them in the field,

01:18:49.345 --> 01:18:50.575
keeping them farm fresh.

01:18:50.575 --> 01:18:52.030
Quite a few of our buyers like that.

01:18:52.030 --> 01:18:54.805
We do have buyers that won't buy out of the market,

01:18:54.805 --> 01:18:56.445
they want them right off the farm.

01:18:56.445 --> 01:18:58.475
We're not going to code in the numbers

01:18:58.475 --> 01:19:00.440
here on this because inevitably,

01:19:00.440 --> 01:19:01.640
somebody would say, well, I know of

01:19:01.640 --> 01:19:03.305
a scenario in which we are wrong.

01:19:03.305 --> 01:19:05.600
But we would agree that

01:19:05.600 --> 01:19:07.790
when you can put together that low lots of cattle,

01:19:07.790 --> 01:19:09.230
they're going to bring a premium price.

01:19:09.230 --> 01:19:10.835
There's just no question about that.

01:19:10.835 --> 01:19:12.920
Assuming again that the right type of cattle.

01:19:12.920 --> 01:19:15.810
We have another call coming in. Come on, we're ready.

01:19:21.310 --> 01:19:23.885
I'm calling from Illinois.

01:19:23.885 --> 01:19:24.770
Good. Welcome. [OVERLAPPING]

01:19:24.770 --> 01:19:27.110
I have a question concerning the hog market.

01:19:27.110 --> 01:19:29.345
I missed the first part of your program.

01:19:29.345 --> 01:19:32.450
I was wondering what you think the low will be this fall,

01:19:32.450 --> 01:19:36.300
and when the next major low will occur, and how low.

01:19:37.780 --> 01:19:41.420
I assume you probably want a specific number,

01:19:41.420 --> 01:19:42.470
which is dangerous to

01:19:42.470 --> 01:19:43.940
ask an [NOISE] economist to do that.

01:19:43.940 --> 01:19:49.850
[NOISE] I would say that I

01:19:49.850 --> 01:19:56.610
would expect hog prices to get in the low 40s this fall.

01:19:56.610 --> 01:20:00.415
I would say the low is going to depend,

01:20:00.415 --> 01:20:02.725
to a large extent,

01:20:02.725 --> 01:20:05.395
in terms of what happens to cattle.

01:20:05.395 --> 01:20:07.875
If cattle prices drop off,

01:20:07.875 --> 01:20:09.650
especially when we get

01:20:09.650 --> 01:20:11.900
the increased broiler numbers this fall,

01:20:11.900 --> 01:20:15.140
then I'd say it's not inconceivable to see

01:20:15.140 --> 01:20:19.970
some cattle prices slightly below $40.

01:20:19.970 --> 01:20:21.695
I would say in the high 30s,

01:20:21.695 --> 01:20:25.880
low 40s would be the bottom this fall.

01:20:25.880 --> 01:20:29.855
I would say the bottom, longer-term,

01:20:29.855 --> 01:20:34.625
would probably be in April of '88.

01:20:34.625 --> 01:20:38.090
If not then, I would be quite confident that

01:20:38.090 --> 01:20:42.035
the bottom in this cycle would be in by the fall of '88.

01:20:42.035 --> 01:20:44.630
Because the bottoms in hog cycles usually

01:20:44.630 --> 01:20:47.270
come when the seasonal lows occur,

01:20:47.270 --> 01:20:50.570
and that's normally April and in the fall.

01:20:50.570 --> 01:20:54.440
I would expect that to be at that point in time.

01:20:54.440 --> 01:20:56.930
I think one of the things we have to

01:20:56.930 --> 01:20:59.300
be aware of now is that,

01:20:59.300 --> 01:21:01.370
with extremely low corn prices

01:21:01.370 --> 01:21:04.385
in the major hog-producing states,

01:21:04.385 --> 01:21:08.690
cost of production by very efficient producers,

01:21:08.690 --> 01:21:10.790
the cash cost for

01:21:10.790 --> 01:21:12.680
some farrow to finish operations is

01:21:12.680 --> 01:21:16.865
actually down to $25 per 100 weight.

01:21:16.865 --> 01:21:18.815
To cover all costs,

01:21:18.815 --> 01:21:21.680
there is low as $35.

01:21:21.680 --> 01:21:27.320
To really turn off the increase in hog numbers somewhere

01:21:27.320 --> 01:21:29.165
in the next year to

01:21:29.165 --> 01:21:33.740
18 months if corn prices stay at their current level,

01:21:33.740 --> 01:21:37.384
it's going to take some really low hog prices

01:21:37.384 --> 01:21:39.560
to slow people down,

01:21:39.560 --> 01:21:41.870
which, to go back and make the point I

01:21:41.870 --> 01:21:44.060
made earlier, and that is that,

01:21:44.060 --> 01:21:47.480
basically, right now, at current price levels,

01:21:47.480 --> 01:21:50.720
anywhere from $15-$20 ahead can be locked in

01:21:50.720 --> 01:21:54.440
on every hog you produce for the next 12 months.

01:21:54.440 --> 01:21:57.440
Given that we're looking at the downside of a hog cycle,

01:21:57.440 --> 01:22:00.020
I think that's a pretty good opportunity

01:22:00.020 --> 01:22:02.285
and shouldn't be passed up.

01:22:02.285 --> 01:22:04.460
One of the things that makes that outlook

01:22:04.460 --> 01:22:07.610
this fall tough is that the corn is going to be cheap,

01:22:07.610 --> 01:22:10.580
and it is, we're going to have some demand for

01:22:10.580 --> 01:22:14.105
those gilts for breeding purposes.

01:22:14.105 --> 01:22:16.670
That makes that outlook a little bit iffy in the fall

01:22:16.670 --> 01:22:17.870
because it's hard to expand

01:22:17.870 --> 01:22:18.680
those numbers right out and

01:22:18.680 --> 01:22:19.610
assume they're going to market.

01:22:19.610 --> 01:22:21.020
Some of them are going to get held back.

01:22:21.020 --> 01:22:23.990
Eventually, that 30-1 in

01:22:23.990 --> 01:22:26.090
better hog-corn ratio is going to pull

01:22:26.090 --> 01:22:29.250
some more people in, without any doubt.

01:22:32.560 --> 01:22:36.575
Sounds like we do not have any more calls right now.

01:22:36.575 --> 01:22:38.510
You two gentlemen got anything you want to

01:22:38.510 --> 01:22:40.325
say to close this session?

01:22:40.325 --> 01:22:42.515
We're getting close to our allotted time.

01:22:42.515 --> 01:22:44.615
Any last words?

01:22:44.615 --> 01:22:46.655
I think what you've said this evening,

01:22:46.655 --> 01:22:48.890
David Kenyon, is that get your hogs priced.

01:22:48.890 --> 01:22:50.165
I believe that's what I've heard,

01:22:50.165 --> 01:22:51.920
and I totally concur with that.

01:22:51.920 --> 01:22:53.990
Bruce has certainly said that we've got,

01:22:53.990 --> 01:22:55.400
in this state, some

01:22:55.400 --> 01:22:58.340
attractive and alternative ways to sell cattle.

01:22:58.340 --> 01:23:00.695
We would all agree that if you can get them packaged

01:23:00.695 --> 01:23:03.380
in uniform lots with some volume there,

01:23:03.380 --> 01:23:04.475
however you do that,

01:23:04.475 --> 01:23:06.335
whatever commingling approach you take,

01:23:06.335 --> 01:23:08.585
you're going to do a better job with them.

01:23:08.585 --> 01:23:10.625
My primary concern,

01:23:10.625 --> 01:23:12.260
as we get ready to close this session,

01:23:12.260 --> 01:23:14.630
is still on the demand side for beef.

01:23:14.630 --> 01:23:16.490
I think, honestly, on the demand side

01:23:16.490 --> 01:23:17.855
for red meats in general,

01:23:17.855 --> 01:23:19.640
we're not out of the woods yet.

01:23:19.640 --> 01:23:21.320
I would urge a little bit of

01:23:21.320 --> 01:23:24.800
caution and get the cattle priced

01:23:24.800 --> 01:23:26.779
when the market offers you good profits

01:23:26.779 --> 01:23:30.080
and be careful with those very big long-term investments.

01:23:30.080 --> 01:23:32.750
We've got another phone message coming through.

01:23:32.750 --> 01:23:35.580
If you'll bring it on in, we'll try to deal with it.

01:23:42.310 --> 01:23:44.495
Not sure which one of the

01:23:44.495 --> 01:23:45.980
phone companies has these lines.

01:23:45.980 --> 01:23:47.330
[LAUGHTER]

01:23:47.330 --> 01:23:47.960
Okay.

01:23:47.960 --> 01:23:50.405
There we go. Go ahead. We hear you.

01:23:50.405 --> 01:23:52.595
To any member of the panel,

01:23:52.595 --> 01:23:57.154
what is the realistic profit potential

01:23:57.154 --> 01:24:02.250
for the 85-cent steers that we've seen sold today?

01:24:02.320 --> 01:24:05.000
From this member of the panel,

01:24:05.000 --> 01:24:07.235
probably not very good.

01:24:07.235 --> 01:24:09.800
You can cover your out-of-pocket cost

01:24:09.800 --> 01:24:11.330
if you forward price those cattle

01:24:11.330 --> 01:24:15.110
at that $71-$72 level we're talking about.

01:24:15.110 --> 01:24:17.540
Remember, again, you've got to pull a basis of that.

01:24:17.540 --> 01:24:21.270
Here in this state, we would be forward pricing at 68-69.

01:24:21.270 --> 01:24:23.080
That's probably going to be a little bit better

01:24:23.080 --> 01:24:25.090
than covering your variable cost,

01:24:25.090 --> 01:24:27.715
but it's not lucrative.

01:24:27.715 --> 01:24:29.200
One of the reasons we're seeing the

01:24:29.200 --> 01:24:30.880
85-cent cause is because we've got

01:24:30.880 --> 01:24:32.200
102 million head of

01:24:32.200 --> 01:24:35.310
total cattle land instead of 132 million 10 years ago.

01:24:35.310 --> 01:24:38.030
A lot of people want them to eat grass.

01:24:38.030 --> 01:24:40.880
I tried last spring to buy something cheap and couldn't,

01:24:40.880 --> 01:24:42.680
and finally enough having to pay up for them.

01:24:42.680 --> 01:24:44.330
So I understand your question [LAUGHTER].

01:24:44.330 --> 01:24:46.325
There's not a whole lot there.

01:24:46.325 --> 01:24:48.920
One of the things that's happening to producers in

01:24:48.920 --> 01:24:50.750
Virginia [NOISE] is the cattle are

01:24:50.750 --> 01:24:52.490
being bid away from us to go into

01:24:52.490 --> 01:24:55.370
the corn belt because corn is extremely cheap,

01:24:55.370 --> 01:24:57.095
roughage is extremely cheap.

01:24:57.095 --> 01:24:59.045
The farm program is required that

01:24:59.045 --> 01:25:01.220
a lot of corn ground be put into set-aside.

01:25:01.220 --> 01:25:03.800
They could grow forage crops on that set-aside land.

01:25:03.800 --> 01:25:04.940
There's a lot of oat leaves,

01:25:04.940 --> 01:25:07.895
a lot of haylage that's out there.

01:25:07.895 --> 01:25:09.905
With that cheap forage,

01:25:09.905 --> 01:25:11.945
$5-$10, sometimes $15 a ton,

01:25:11.945 --> 01:25:13.610
along with cheap corn that you

01:25:13.610 --> 01:25:15.785
can't seem to sell out of the country any other way,

01:25:15.785 --> 01:25:17.270
their only alternative is to buy

01:25:17.270 --> 01:25:18.830
cattle and feed it because they're looking at

01:25:18.830 --> 01:25:20.809
a different set of cost components

01:25:20.809 --> 01:25:23.240
and values than we might be looking at here.

01:25:23.240 --> 01:25:25.160
They're bidding those cattle away from us.

01:25:25.160 --> 01:25:27.215
We can't make 85-cent cattle work,

01:25:27.215 --> 01:25:28.370
they might be able to.

01:25:28.370 --> 01:25:29.660
They've got a little more optimism

01:25:29.660 --> 01:25:30.680
because their costs, again,

01:25:30.680 --> 01:25:34.025
are roughly 20-25 percent cheaper than ours.

01:25:34.025 --> 01:25:35.720
That pays some of the freight and that

01:25:35.720 --> 01:25:38.540
helps get those prices where they're at.

01:25:38.540 --> 01:25:40.520
Good point, Bruce. Do we have

01:25:40.520 --> 01:25:43.890
more calls or are we closing up the session?

01:25:44.020 --> 01:25:46.280
Any questions from the audience?

01:25:46.280 --> 01:25:47.720
We've got an audience here.

01:25:47.720 --> 01:25:49.790
We'll take a question from there and repeat it so that

01:25:49.790 --> 01:25:50.870
our audience out there

01:25:50.870 --> 01:25:52.400
could hear it. Anybody got anything?

01:25:52.400 --> 01:25:54.080
Yes.

01:25:54.080 --> 01:25:56.090
Yes. Go ahead and ask one.

01:25:56.090 --> 01:25:59.870
If you had about 80 850-pound steers,

01:25:59.870 --> 01:26:01.700
when would you price them?

01:26:01.700 --> 01:26:04.250
[LAUGHTER] Now we're getting down to the brass tacks.

01:26:04.250 --> 01:26:07.490
He's got 80-100. What weight did you use?

01:26:07.490 --> 01:26:10.100
Right now they weigh about 850.

01:26:10.100 --> 01:26:12.380
We've got someone in the audience here that's got

01:26:12.380 --> 01:26:13.700
a bunch of 850 pounds steers

01:26:13.700 --> 01:26:14.870
and wants to know when to price them.

01:26:14.870 --> 01:26:16.430
Soon [LAUGHTER].

01:26:16.430 --> 01:26:18.710
In particular, if not before,

01:26:18.710 --> 01:26:21.650
then when you see that trend line on that chart violated.

01:26:21.650 --> 01:26:25.340
I can't over stress the importance of having some type of

01:26:25.340 --> 01:26:27.110
road map to price action and something

01:26:27.110 --> 01:26:29.135
to know where you've been and where you might go.

01:26:29.135 --> 01:26:31.190
If you're not charting the market, you should be.

01:26:31.190 --> 01:26:32.420
We tried to say that in

01:26:32.420 --> 01:26:33.950
almost every presentation tonight.

01:26:33.950 --> 01:26:36.020
As long as the market's trending up, you might say,

01:26:36.020 --> 01:26:36.620
well, I'm going to be

01:26:36.620 --> 01:26:38.540
a cash market speculator and let it go.

01:26:38.540 --> 01:26:40.940
But when it shows you some signs it's turning down,

01:26:40.940 --> 01:26:42.320
when it closes below that trend line,

01:26:42.320 --> 01:26:44.465
you need to get them prized then, that day.

01:26:44.465 --> 01:26:46.100
What about feeder calves?

01:26:46.100 --> 01:26:47.690
What about feeder calves?

01:26:47.690 --> 01:26:49.370
When do you price them?

01:26:49.370 --> 01:26:51.290
The same point. His question

01:26:51.290 --> 01:26:53.820
is about when to price feeder calves.

01:26:54.700 --> 01:26:57.530
There's never anything wrong with

01:26:57.530 --> 01:27:00.095
locking up a substantial profit per head.

01:27:00.095 --> 01:27:01.790
Go on and do it, if a market

01:27:01.790 --> 01:27:03.230
goes on up and you've priced them,

01:27:03.230 --> 01:27:04.700
and some margin call, don't worry about it.

01:27:04.700 --> 01:27:06.500
But again, in that market,

01:27:06.500 --> 01:27:07.970
we've got strong up trends.

01:27:07.970 --> 01:27:09.740
You can logically say we'll let

01:27:09.740 --> 01:27:11.930
the market trend as high as long as it wants to,

01:27:11.930 --> 01:27:13.640
and when it shows some signs of turning down,

01:27:13.640 --> 01:27:15.020
I want to be there, be ready,

01:27:15.020 --> 01:27:17.045
be prepared mentally, financially,

01:27:17.045 --> 01:27:18.950
every other way, and get them priced.

01:27:18.950 --> 01:27:20.915
I think we're going to get good opportunities.

01:27:20.915 --> 01:27:22.250
We've already had some.

01:27:22.250 --> 01:27:26.075
Let me make just one more comment about the hogs.

01:27:26.075 --> 01:27:28.355
The hog futures contracts

01:27:28.355 --> 01:27:30.650
that we all looked at this evening,

01:27:30.650 --> 01:27:32.495
you see that the trend is up.

01:27:32.495 --> 01:27:34.880
That scares people in terms of

01:27:34.880 --> 01:27:38.120
forward pricing when the trend is up,

01:27:38.120 --> 01:27:42.455
but for several years now we have had options available.

01:27:42.455 --> 01:27:47.060
Options for $46 October hogs,

01:27:47.060 --> 01:27:50.330
and for $46 December hogs,

01:27:50.330 --> 01:27:55.940
respectively, right now cost about $1.60 or $2.30.

01:27:55.940 --> 01:28:02.705
For that price, you can lock in a price of about 44 net,

01:28:02.705 --> 01:28:04.820
which if costs are 35,

01:28:04.820 --> 01:28:06.170
that's still almost $10,

01:28:06.170 --> 01:28:08.255
100 weight or $20 a hog.

01:28:08.255 --> 01:28:09.920
You have the bottom locked in,

01:28:09.920 --> 01:28:11.900
you've got $20 locked in.

01:28:11.900 --> 01:28:13.820
If prices, for some reason,

01:28:13.820 --> 01:28:15.890
which I don't anticipate, but for some reason,

01:28:15.890 --> 01:28:18.845
if the price should go back up five or six dollars,

01:28:18.845 --> 01:28:20.540
all you will lose is the premium and you

01:28:20.540 --> 01:28:23.045
can enjoy those higher prices.

01:28:23.045 --> 01:28:25.280
Now is an ideal time to use

01:28:25.280 --> 01:28:27.590
those options when you can lock in a good return

01:28:27.590 --> 01:28:30.200
if you're concerned that maybe the price is going to be

01:28:30.200 --> 01:28:33.690
a little higher than we discussed this evening.

01:28:33.940 --> 01:28:36.725
Folks, we're going to close the session.

01:28:36.725 --> 01:28:38.480
From Bruce Bainbridge, and David Kenyon,

01:28:38.480 --> 01:28:40.925
and Wayne Purcell, thank you so much.

01:28:40.925 --> 01:28:42.725
We hope we've done you a little bit of good,

01:28:42.725 --> 01:28:44.420
and good markets to all of you.

01:28:44.420 --> 01:29:35.000
Good night. [MUSIC]