Futures adjustment comes as predicted

Sure enough, cattle futures were off 33 to 167 points today, as futures traders needed to create volatility in the market to generate commissions--just as this blog said they would last week.

The same market conditions exist today, as did last week when the market was going higher: a shortage of market-ready cattle, overall cattle numbers down, strong beef sales and strong leverage held by feedlots. Feeder cattle were even up $1-$2 at the major Oklahoma City auction today. But a steady to modestly higher market, as such conditions would indicate, wouldn't create trading commissions.

So traders sold enough contracts to drive the market down, creating a situation where it then made sense for some to buy in--and generate trading commissions in the process. All according to form, and thoroughly predictable.

The basic strong fundamentals of the cattle market remain, and a few burbles up and down in futures don't take away from that. There are problems like high corn prices and other grain prices, drought and other weather events yet to happen--but the fundamentals are strong.

You'll drive yourself nuts watching every little up and down in the cattle futures. You have to watch and invest for the long term. And the long term looks good.

Sure enough--ag issues far from campaign

As happens every presidential election, once the Iowa primary is over, even cursory discussion of agricultural and farm issues grinds to a halt. It's the same old story: pander to the Hawkeye State farmers by promising ever higher subsidies and use mandates for corn-based ethanol, and then escape and shut up, before the rest of the voters figure out what a bad deal for them ethanol from corn really is.

It takes more energy and water to produce the corn and make it into ethanol, than ethanol returns in energy. 85% ethanol is cheaper at the pump ONLY because it carries a 50-cent-a-gallon federal subsidy, and because it gets less miles per gallon than gasoline, so has to be cheaper to be competitive.

Meanwhile, just so the politicians can buy a few votes in Iowa, food prices soar because of the high cost of corn, artificially inflated by the federally-subsidized ethanol business. Livestock producers are cutting back herds, and losing money, because corn is too expensive to profitably feed to cattle, hogs and poultry.

Obama has said one thing only that even vaguely relates to agriculture: urged President Bush not to bring the Korea trade pact to the U.S. Senate--where he doesn't show up and vote anyway--because it'll allegedly cost some union jobs. What he doesn't say is that the Korea trade pact is an excellent, badly-needed shot in the arm for agriculture, which needs it to make up for what the pols gave away in ethanol subsidies for Iowa farm votes.

As predicted here with absolute certainty a few months ago, the presidential campaigns are once again dead silent on farm issues. Congress passed a horribly bloated, socialistic farm bill, with nary a word from the presidential candidates.

Yep, politics as usual.

July 4 Independence Day--big beef occasion

The profit in beef sales is largely wrapped up in special occasions: Thanksgiving, Christmas, Father's Day, Labor Day, Memorial Day. If the industry can just break even from the day in, day out beef sales, the frosting on the cake are the holidays, when the real keeping money comes in.

After all, what is prettier, than that big prime rib coming out to the family dining table on Thanksgiving or Christmas. The other holidays are outdoor grilling occasions, and what goes better on the grill than hamburgers or steaks. Steaks and prime rib are more expensive cuts, with higher profit margins.

This blog is not the only one to take notice of this: the cattle futures market, and the wholesale beef market. Both have gone crazy in the two weeks leading up to July 4, in anticipation of the big beef clearance. Wholesale beef prices this July 4 are up 20% over last year.

Just like bread has five cents worth of wheat in it, according to the return to farmers, not all this price increase finds its way back to the ranch. Packers, wholesalers, retailers--all harvest up more than producers from the better prices. And the better prices could drive some consumers to chicken or pork for their July 4 outdoor cookout.

While not an unmixed blessing for cattlemen, July 4 this year will be just a little merrier.

Wholesale beef prices, futures going bonkers

Cattlemen should remember the old saw "whatever goes up, must come down." Again today, futures were up strongly, prodded mostly by smartly rising wholesale beef prices,

It's said to be a part of a broader trend in the financial world, of capital rushing into commodities to offset rapidly rising oil prices. As the stock market has fallen in response to oil prices, investors have flocked to commodities instead, which allegedly are more stable and backed by the actual commodity itself.

Try telling that with a straight face to most cattlemen. Outside of the huge packers and feeders with enough capital to corner the futures market, futures are hugely unpopular with most cattlemen, who feel the whipsaw, zipzag effect futures have on cattle prices. It's because too many buy an "Oklahoma Hedge"--with 1,000 head of cattle on the ground, they buy contracts on 2,000.

Futures traders encourage this, because they work on commissions, and don't care whether the market goes up or down--just so it's volatile, to generate lots of buying and selling--and commissions.

In truth the futures are highly speculative, and are probably near a crash. Wholesale beef will be high a few more days, as the last of July 4 holiday orders are placed and processed. But soon it will be in for are major correction too.

To read all the breathless commentary from traders and analysts, you'd swear there'll never be another dark day in the cattle business. In truth, there's probably one right around the corner.

All that will keep it from being a major depression is that cattle numbers are very low, and supplies very tight. Yearlings are hard to come by, the calf crop is smaller, and they're culling cows like crazy because of high grain prices.

Ho hum. Just another day in the cattle business . . .

Ag job layoffs only beginning due to corn prices

The old ConAgra turkey plants in northern Colorado, now owned by Smithfield and called Butterball, are laying off 800 employees, due to high corn prices and the damages to the crop and turkey farms from the Iowa floods.

This is not small potatoes to a town the size of Longmont, Colorado. While not highly paid, primary wage earner-type jobs, the Butterball jobs are still supporting lots of families at least partially, that will suddenly not be spending into the local economy. There are lots of high-tech jobs in the computer and technology sector in the greater Longmont vicinity, but without a lot of retraining, former Butterball employees are not likely to be able to fill them.

This is only a single, isolated layoff. Across rural America there will be many others, as high corn prices and a short corn crop due to the floods, leave agribusinesses reeling. Ethanol plants themselves are likely spots for layoffs, because the corn crop might well be short enough, and expensive enough, that they will not be able sustain full production.

Livestock numbers, including cattle, hogs and poultry, are dropping, because producers can't afford the corn to sustain present production levels. Farmers who had been looking forward to a huge payday from their corn crop, have lost valuable acreage due to flooding and must plant a substantially less lucrative crop like milo or sudan grass, because they've lost too much growing season already, to produce corn.

Whether we suffer a full blown ag depression remains to be seen in the next three months, but there will be negative effects and reduced income, which will ripple across the whole U.S. economy.

Free market environmentalism win-win

Farmers and ranchers are the original environmentalists, along with lumber companies, professional fishermen and others who recognize that they must preserve and protect the land for it to keep providing them with a living.

It is assinine to think that environmental radicals like Greenpeace have a leg to stand on, when they denigrate the very people in whose self interest it is to preserve and protect the land. Farmers and ranchers quickly realize that the land is a renewable resource, and will fail them, if they don't take care of it. Similarly, loggers must replace the trees they harvest for lumber, or there won't be any more lumber.

A great think tank in Bozeman, Montana called PERC has the slogan For Free Market Environmentalism. It promotes projects by private enterprise that see the profit incentive in doing things right. It rigorously stands up against the hammer of government setting inflexible and inviolate environmental regulations that make the problem worse instead of better.

A great example is the Yellowstone Forest Fires of 1988. They were caused primarily by environmental regulations that didn't allow logging in national forests, so the trees were too close together and the forest floor clogged with dead timber. When lightening set off a fire, there was tremendous fuel for an inferno that so sterilized the land that in some places trees never have grown back.

In private forests adjoining Yellowstone, which are harvested regularly for timber, the fire was not nearly so hot and in just a few years, trees had grown back tall enough to hide men. The profit incentive prevented the disaster environmental regulations caused on federal land.

That's just one small example of free market environmentalism. Ultimately, that's what will save the planet: making it profitable for free enterprise to do the right thing.

Corn Belt floods destroy feed crops

Ethanol production competing with livestock for the nation's corn crop was already a serious problem, before the Mississippi River left its banks across Iowa and points southward.

Now, there will be major shortages of corn and soybeans, from flooded fields that will not have a crop this year. There are estimates of 3 million acres that won't produce in Iowa alone. This will drive already over-the-top corn and grain prices further through the roof.

This, in turn, will make food to consumers more costly. Meat will cost more, things like cereal and baked goods that use grain and corn sweetners, will be much more expensive. Food prices were already rising, especially due to high oil prices driving transportation costs to get food to the supermarkets up substantially. Now the crop shortage will make what was already a serious problem a calamity.

Ethanol producers were already facing a tough financial picture, with their main ingredient--corn--so high priced. It will be much higher priced now, and in very short supply. Many of the new ethanol plants are highly leveraged, and could face financial ruin. Giants like Archer Midland, will probably sweep through the nation's Corn Belt and buy up little ethanol plants for pennies on the dollar.

As the nation's largest corn refiner, Archer Midland stands to lose money too. The difference is, they can afford it.

Cattle biz in the 'out grazin' doldrums

It happens every year.

By June 1, the cows and calves are turned out on summer grazing, be it ranch pasture, leased land, Bureau of Land Management lease, Forest Service lease, Federal Grazing Preserve or state land. They'll be back at the home place by October 1 or so, depending on how long the moisture and grass hold out.

This means most cattle marketing activity ceases, and those that depend on it for their living are strung out to dry. Many local sale barns close up for the summer altogether, others go to a every-other-week or monthly sale schedule, and a few hardy proprietors continue to have a sale every week--however small. There's always a few broke ranchers that need a little quick cash and bring in a cull cow or bull, or two.

And there's cattle traders that'll be present as long as the doors are unlocked. They know how to separate the wheat from the chaff, and know that if they sit in enough sale barns long enough, they'll find a few bargains. The clinkers can always go straight to the packing house.

This traditional pattern has been modified somewhat in recent years by satellite video auctions, like Superior or Western or Northern States. They sell load lot contracts for fall delivery, when the cattle come in off the summer grazing. These events sell more cattle every year, and the smart sellers know that feeder cattle usually garner better prices on the video in the summer than they will in the fall at the local sale barn, when the glut hits the market.

There's maybe a dozen video sales over the summer, as well as a few widely scattered local auctions. For the cattle marketing junkie--there's not much to do until fall.

I believe I'll have another glass of iced tea . . .

Bush vetoes, Congress overrides farm bill again

The slipshod, slapdash way Congress throws together legislation reared its ugly head once again on Friday, as it was necessary to pass the Farm Bill again and for President Bush to veto it again, all because they left out 32 PAGES in the initial passage. This gross incompetence and lack of attention to duty and detail is very costly to taxpayers, and keeps Congress from considering really important legislation, like athorizing more drilling for oil.

What was deleted was the foreign trade provisions for agricultural commodities, with the potential to grind all world ag trade negotiations to a halt. The bloated, massively expensive and expansive Farm Bill is a travesty and election year Christmas Tree, with goodies for all the special interests. It is at least $10 billion over budget, and President Bush was thoroughly justified in vetoing it.

Special interest campaign funds were at stake for Congressmen and Senators, with their eyes more on the November election than on the public interest. Campaign funds won out, as a disturbing number of Republicans voted to override Bush's veto, rather than support their party's president.

The Farm Bill is a massive shrine to arrogance and log rolling, and should be an embarassment for concientous legislators, but it's not. As with Obama dropping his pledge to accept federal funds for his campaign, in the face of record lucre, honor and consistency are cheap in Washington, and the Farm Bill showed it.

USDA cattle-on-feed report bullish

Today's monthly U.S. Department of Agriculture cattle-on-feed (COF) report is considered quite bullish by most analysts. Fed cattle prices were up $1-$2 this week and cattle futures contracts on the Chicago Mercantile Exchange have been higher most of the week.

With the COFshowing smaller placements into the feedlots than expected, and higher marketings out of the feedlots than predicted, everything's coming up roses, right?

Undoubtedly wrong. You're dealing with two artificial items in the COF and the Merc, and as experience has proven, there is no substitute for the performance of the actual live breathing cattle, standing on the ground in the feedlot, and the dead ones, hanging on the rail at the packing plant.

The COF and the Merc are neither one of those things. The COF is an estimate, a guess, by economists sitting deep in the bowels of USDA's puzzle palaces in Washington D.C. There is no actual, physical count of the cattle in feedlots, either going in or coming out. The COF number is treated by the traders at the Merc as the holy grail, but its not. Its a guess, that frequently is wrong and changed up to two years after the fact.

By then, the damage has been done and the "correction" affects nothing. But it does show the fallacious nature of the cattle-on-feed report and its unreliability.

Which brings us to the Merc. It is an exchange of paper contracts that don't even represent actual cattle that reallly exist. They are bought and sold by commissioned salesmen, who could really care what happens to the cattle market, as long as it stays volatile, as they make commissions on both buying and selling. They are dead in the water when the market is steady and stable--the way cattle owners like it--because no contracts change hands.

For owners and producers of actual cattle, both the COF and the Merc are wildcards that make their job a lot harder. While touted by their proponents as curbing risk and stabilizing the market--in reality, they do just the opposite. They increase risk and create instability in cattle prices.

It's like the old shell game. They want to keep you guessing as to which shell has the money under it, as they shuffle them around. That's what the Merc and COF do for actual cattlemen, buying and selling real, existing cattle.

South Korea strikes out on beef renege try

South Korea found out that a "deal is still a deal" in the good ol' US of A this week, as emissaries it sent to the U.S. Department of Agriculture in Washington refused to change the terms of a beef trade pact opening South Korea to U.S. beef, that it signed a month ago.

U.S. vegetarian and animal rights groups interceded via the internet with Korean radicals opposed to the current government, fomenting huge street demonstations against U.S. beef and putting politrical heat on the new government. That's why they came to Washington D.C. hat-in-hand this week to try to cut a new deal.

Other South Korean pols are at the State Department and other government agencies to try to undo the deal, but so far President Bush and Congress have been insistent that any broad trade deal include opening the South Korean market to U.S. beef as a precondition to anything else.

South Korea was a major consumer of U.S. beef before cutting it off in the phony BSE scare, where a couple of dairy cows imported into the U.S. from Canada turned up with BSE. This was a trumped up, crass attempt by Asian nations, including Japan, to kick sand in the face of the Big U.S. and seek a public relations thumbs up. It has been costly to both nations, in lost trade in other products and in lost tourist and convention business, because of the inferior beef served in the Asian countrie's major hotels.

It is especially hypocritical, because both countries have a far worse BSE problem in their domestic cattle herds than anything ever seen in the U.S. They should clean up their own houses, before they attack the safe, wholesome U.S. beef industry.

I applaud the President, Congress and government officials who are hanging tough with South Korea, as well they should. South Korea signed the new trade pact 30 days ago with their eyes wide open, fully aware of what they agreed to. It's now time for them to live up to their part of the bargain.

Conservation Easement abuse two-edged sword

There are big federal and state tax breaks available to farmers, ranchers and other rural landowners who place covenants on their land that it will never be developed--it will remain rural, or in production agriculture, forever.

As a lover of agriculture and rural America, I can identify with that sentiment. It might well be a worthy goal worth foregoing tax revenue for.

But needless to say, no good deed goes unpunished. Wealthy non-agriculture types have bought up rural land, taken the tax breaks for signing a Conservation Easement, and still own the land that can be used for hunting and fishing, hiking or agricultural production. Abuses have turned up where they bought the land cheap, obtained inflated appraisals for the land, and taken tax breaks that nearly recouped their initial investment--in essence, obtaining the land for free.

Tax breaks do no good if you don't have enough income to take advantage of them. Farmers and ranchers are frequently in that situation, so have little incentive to sign a Conservation Easement. Wealthy speculators are not.

You can hardly blame a farmer or rancher, who after a lifetime of toil on the land and facing a bleak retirement, cashes in the only asset he has, the land. When a wealthy investor comes calling, the temptation and lure of cashing in is almost too good to pass up. The investor, in order to get a return on his money, is either looking at developing the land, or recouping the investment with a Conservation Easement.

This creates a real dilemma for the career farmer or rancher. It's a Hobson's choice--take the money and run, or wince at the likely outcome of his life's work.

Obama taps Al Gore--disaster written all over it

Today was the big environmentalist love feast in Michigan, so Barack Obama could receive Al Gore's blessing in his camapign for the presidency. Gore has been nominally neutral to this point, although his disdain for the Clintons is well known, so his endorsement of Obama comes as a big yawm to objective observers.

This hasn't stopped the liberal mass media from fawning over Obama like he'd just heard from heaven. The truth is, the world is starting to catch on to Al Gore, who refuses to appear in public with, or debate, anyone who questions his scientifically-dubious global warming dogma. As the earth cools, and it becomes more evident everyday that the earth decides what it will do, not man, Gore's credibility sinks.

In truth, Obama is in bad shape in Michigan, and this is the second big media hoorah he's thrown there in recent weeks, to try and turn things around. He pulled his name off the Democratic primary ballot there and Hillary Clinton won the primary by default. She ran especially strong among older women and the blue collar white males there, making Michigan one of the major swing states, along with Pennsylvania, New Jersey and New Hampshire, where McCain is running strong.

If there is any common sense--which is very uncommon, actually--in Michigan, among the unemployed auto workers and closed rust belt auto parts and auto factories, it is that Al Gore and his hoax is responsible for their plight. Gore should be the least popular man in Michigan, and a major Obama faux pas to announce his endorsement there.

Of course, the media uncritically swallows all the hype, and doesn't breath a word of the truth, so Obama and Gore will probably get away with their little charade.

But they may not get away with it in November, and if McCain carries Michigan, it might seal Obama's doom.

Iowa floods not necessarily a corn disaster

While there is some corn lost in the Iowa floods, certainly, the early indications are that it is not enough to create massive shortages of the commodity. Some is lost every year between the pre-crop predictions and the grain bin, due to drought, hail and pestilence. A loss factor is figured in to the early estimates, and counted on by the commodity futures traders.

A disaster such as the Iowa floods may be used as an excuse for a day or two by futures traders seeking market volatility to generate a few more commissions, but over the whole season, it will just be another blip on the radar.

Some corn hadn't been planted yet, some can be replanted and other corn benefitted from the rains but missed the floods, so most observers think it will average out for the season. The real serious damage is in the cities, such as Cedar Rapids and Des Moines, where some 38,000 people have been displaced, and rivers haven't fully crested yet. The muck and disease-spreading filth will take a while to clean up in the cities, and will gather all the publicity.

Corn prices have gone through the roof, well over $7 a bushel, but are already starting to back off, as panic subsides and traders realizie they may well have overdone it.

Of course the floods are a natural disaster, the magnitude of which we wouldn't want to minimize. But perspective teaches us that a lot of the grief had already been built into the system. The grain market will adjust.

Watch out--cattle prices in hands of futures traders

This blogger is not a big fan of cattle futures contracts traded on the Chicago Mercantile Exchange. This is where the Big Boys play, and the poor average wretch trying to eke out a living in the cattle business doesn't stand a chance.

You see, any of the Big Three meat packers, or a couple of the huge cattle feeding firms in the Texas Panhandle can afford to buy enough cattle contracts on the Merc at any one time to virtually corner the market. Traders on the Merc are more than happy to accomodate them, because they make commissions on each contract they trade for a customer. They don't care if the market goes up or down, but its the volatility that makes contracts buy and sell--so that's what they're after.

So it is today, and June live cattle contracts on the Merc are trading at a higher price than fed cattle currently are in the cash market. Either the so-called "fund" buyers will buy enough contracts to drive cash prices up to meet the current June futures price. Or, of course, they can sell enough to drive futures down to the current cash price--or lower.

It is really out of the hands of the average Joe who owns cattle. He only stands to make or lose money, based on what other people decide to do between now and the June contract expiration on June 30. Undoubtedly, there are many cattle owners, with cattle in a feedyard, in various stages of being ready to sell to a packer, wringing their hands, waiting for the Big Boys to decide their fate.

Congress is nibbling around the edges of the Commodity Futures Trading Commission, the toothless "regulatory body" of futures trading, primarily due to high food prices and the role futures trading in corn at the Chicago Board of Trade has had in jacking up corn to almost $7 a bushel.

Most people can tell them without an expensive study: it's ethanol, the energy-wasting, non-solution to our nation's energy crisis. It takes more fuel and water to raise the corn and then process it into ethanol, than the resulting fuel that comes out--and it gets poorer mileage than straight gasoline to boot. Even worse, it's the competition between the heavily federally subsidized ethanol producers and livestock feeders for the corn--that's why its $7 a bushel.

Question answered. No charge.

Close to the Knife

A favorite phrase in talking about meat packers is "Close to the Knife." It means that when cattle prices don't suit them, and they run out of formula cattle they stole on forward contracts, they don't buy very many head from feedlots--just barely enough to keep the production lines moving.

When the phrase comes into the lexicon of the business, is when they come up short, because boxed beef and wholesale beef moves so well that they need to ramp up production to meet the demand. Normally, fed cattle sell out of the feedlots on Thursday afternoon or Friday, and packers get enough bought to carry them through the following week. Most of the Thursday or Friday purchases are for delivery a week from the next Monday.

When they are forced to take delivery earlier than that, or don't even have enough bought to pull them forward, they are said to be "Close to the Knife."

So it was last week, when packers jumped into the market on Tuesday--way earlier than normal. Memorial Day beef sales the week before were much better than they estimated, and they bought cattle based on the four-day work week of the holiday. When retailers placed heavier than expected orders following the excellent Memorial Day beef clearance, packer buyers had to jump into the market early.

They were helped by a blip in corn prices, driving cattle futures down preciptiously and convincing feeders to take $1 lower money for their cattle. If feeders had held out a day or two, short bought packers would probably have been forced to pay $1-$2 higher money to get the cattle they needed. (Hindsight is 20-20, as they say).

Now the floods in Iowa, burying some of the nation's best cornfields, are driving corn futures to all-time highs on the Chicago Board of Trade. If the rumor-caused bounce of a week ago drove corn prices, how on earth will they open Monday morning, when faced with a real, rather than contrived, disaster?

It ought to be interesting.

Cashew oil may cut cattle methane emissions

For those ultra-greenies who are concerned that cattle emit too much methane into the atmosphere, both by belching and gaseous wastes anally, cashew nut oil is riding to the rescue.

Personally, I could really care. After spending tens of millions of taxpayer dollars to track methane emissions from cows, it was determined that they represented less than one percent of the methane emitted into the atmosphere. After all the automobiles are cleaned up, all the factory smokestacks cleared and all the miscellaneous sources of pollution like lawnmowers--then go after the cows.

I remember when a man got elected U.S. Senator from Wyoming by running television commercials of horses walking around the range with porta-potties strapped to their rearends. Needless to say, he was overwhelmingly elected and re-elected. That alone showed the ludicrous nature of the complaints.

A firm in Japan will have commercially produced cashew oil for use as an additive in cattle feed available within four years. It will only cost pennies a day, and studies show it slashes bovine methane emissions by 90%.

Hooray!

Food prices will ultimately rule

As public protests multiply about high and rising fuel and food prices, old-fashioned economics will come into play.

As the consuming public demonstrates what they will buy and won't buy, and in what quantities, it will filter back to the farm and determine what is grown--and more importantly, what isn't.

The free enterprise system and the marketplace will ultimately rule. As prices rise and incomes don't, consumers will have to decide what to buy with their shrunken and scarce dollars. That's the classic definition of economics: the science of allocating scarce resources.

It's already starting to show up in the oil market: less driving, people buying more energy efficient cars, taking mass transit instead of driving their own car. U.S. oil consumption is dropping, and that trend will show up as less income in Arab pockets. It may take a few months, but oil prices will come down, and OPEC will have to pump more oil to receive the same income.

The same system will work with agricultural commodities. There is a temporary economic dislocation now, as the competition heats up for corn between food and manufacturing ethanol. Manufacturers are already switching from corn sweeteners back to cane sugar or artificial sweeteners for baked goods and soda pop. This is only in the early stages, but as the demand for corn falls, and it will, the price will too.

While now the market signal is to plant corn fencerow to fencerow, when the price and demand drops, farmers will be searching for a replacement crop.

The successful futurists are already figuring out what that will be, and planning accordingly. Progressive farmers and ranchers would be wise to do the same thing.

Green grass leads to aggressive feeder cattle buys

Ample, and sometimes too ample, moisture in most areas has resulted in abundant green grass. Cattlemen love green grass, and can't resist finding cattle to turn out and graze on it.

That explains the recent high prices for feeder cattle. Most calculations of feed cost, interest, veterinary expense, and transportation show that feeder cattle purchased at current price levels probably won't break even at expected fall price levels, when it comes time to liquidate the summer grazing stock.

Green grass, though, is a strong, powerful lure and feeder cattle are being bid up like hotcakes, so the pretty pastures will be full. It's still possible that a better-than-expected fall market will bail them out, or that the plentiful moisture will continue on into the summer and they'll come off grass heavier than projected.

Cattle are sold by the pound, so gains count. Nonetheless, most analysts agree that what former Fed Chairman Alan Greenspan called "irrational exuberance" has gripped the feeder cattle market. The greater likelihood is that come fall, there will be some broke, disappointed sellers. Hedges with feeder cattle futures, where possible, and selling them early on the summer video sales offer the best protection.

Almost without exception, the best feeder cattle prices of the fall are obtained on the summer video sales, where the cattle are sold for a down payment for future delivery. If the fall market drops deep enough, buyers may even walk away from their downpayment and not take the cattle. But if that happens, the seller has a little extra change in his jeans to cushion his losses from the projected fall cattle market.

Next September is an eternity in the cattle business, but, as the bible says "when the secrets of all hearts shall become known," and only then will we really know the outcome of today's aggressive bets on feeder cattle.

White House threatens Energy Bill veto

As the Democratic majority in the U.S. Congress tries to reap the political hay from high gas prices, it is, of course, trying to pass a politically popular Energy Bill--it won't lower gas prices, but they hope it will help elect Obama.

The center piece of the bill is a Windfall Profits Tax on oil companies. This is the doomed-to-fail bromide last tried by the failed Jimmy Carter presidency. It led to gas shortages, long lines at the pumps and higher gas prices. In addition, the bill gives greater authority for congressional investigation of price gouging.

While this might lead to great political theater on television for the election, and give Democratic candidates the chance to bash their GOP opponents, it will not increase the gasoline supply, lower prices or lead to a long term solution to the problem. The White House has vowed to veto the bill, and the trick will be to hold together enough Blue Dog Democrats and conservative Republican votes in Congress to sustain the presidential veto--unlike on the bloated, pork-laden Farm Bill.

Farmers and ranchers, of all people, are paying the price for the lack of sound federal energy policy. Drilling in Anwar and off the coasts of Florida and California for oil, lessening burdensome environmental regulations to make it easier to build America's first oil refineries and nuclear power plants in 30 years--these are steps that will solve the problem, and new polls now show that some 57% of Americans favor this solution.

Democrats beating up on the oil companies and Republicans over high gasoline prices, and catering to environmental extremists that prevent real solutions, may not any longer be the political panacea they think it is.

Imported ethanol tariff set to expire

A heated political war is about to erupt over the 54 cent a gallon tariff on imported ethanol, which would mostly be the sugar cane ethanol from Brazil. It presently is unfeasible to import it, since the combination of the tariff and USDA's 50 cent a gallon subsidy of domestic corn-based ethanol makes imports uneconomic.

This battle has important implications for U.S. agriculture. Allowing in imported ethanol would tend to bring down the price of gas, making the U.S. buy less foreign oil. But it would expose the tenuous nature of U.S. ethanol and its fragile economics. Sugar Cane produces much more ethanol per acre than corn does, at a substantially lower cost. Corn-based ethanol is in for a short run anyway, as more efficient crops like switch grass take its place.

Only corn growers are making money from ethanol, driving corn up to $6.50 a bushel. For the corn consumers, be they livestock, commercial baked goods or soft drinks. the expensive corn is a serious problem. This side of agriculture is fighting hard to get the tariff lifted and corn prices down.

But it is an election year, and Democrats hope to carry the Corn Belt states to elect Obama and increase their majorities in both houses of Congress. Protecting corn growers, which is not in the best interests of consumers, will be a priority until after the election. At that time, pure economics are likely to take over, and corn-based ethanol's days will be numbered.

The imported ethanol tariff battle is only round one, and we'll be hearing about it for years to come.

Fake "carbon trade" market could boost ag income

The sale of indulgences by early-day Roman Catholic priests and cardinals, allowing one to live and act however he chose, was widely panned and proven of no value over the centuries.

The newly shelved Lieberman-Warner bill would have set up a market to trade carbon credits--in essence, clean industries like agriculture (yeh, cows do fart, but what the hell?), could sell carbon credits to polluters like power plants and other industrial titans, with Uncle Sam harvesting a "boot" off each one.

While this will raise the price of many goods to the consumer, it may prove a great thing for agriculture. If you can't raise corn for some reason, currently at a record $6.50 a bushel, or collect Conservation Reserve payments from Uncle Sam, you could sell indulgences to polluters. What a deal!

Dead for this session of Congress, it is generally conceded that a new Congress and new President, will revisit the issue. With both McCain and Obama on board with Lieberman-Warner, and the likelihood of continued Democratic majorities in both houses of Congress, the prospects for carbon trade look rosy indeed.

Of course carbon trade is a fake "market," a socialist contrivance to raise new revenue under the guise of free enterprise. But you lucky farmers and ranchers could be on the front lines of new income. As Robin Hood continues to take from the rich and give to the poor--farmers and ranchers could be on the receiving end.

Like they say, keep your noses clean.

Summer doldrums creeping into cattle prices

It is a well known fact that when the cows and calves go out on the summer grazing until September, cattle prices level out, or even go in the tank. There is no significant marketing activity until fall. Many auction markets don't even have sales in the summer, or go on a monthly or biweekly schedule.

Fed cattle at the feedlots were $1-$2 lower last week, and feeder cattle futures crashed on the Chicago Mercantile Exchange. Early last week, before the futures crash, feeder cattle were $1-$2 higher at the local auctions. Later week sales were barely steady.

High feed and energy prices make it dicey whether feeder cattle at the current prices will pencil in the fall, when the cattle come in off the summer grass and are sold. Some analysts have been predicting lower feeder cattle prices for weeks, as a result. Such predictions may finally be coming true. The main summer marketing activity are the big video auctions, for fall delivery. Such prices are usually better than what the fall market proves to be and ranchers were usually smart to sell on the summer video.

Last week's first of the season video event started strong, but dropped noticeably once the the Merc feeder cattle futures tanked. Whether this was a one time occurance, or a harbinger of things to come, remains to be seen.

Cattle numbers are down, due to drought, range fires and bad winter weather a couple of years ago. A lot of cows have been slaughtered, and the calf crop was down. This may well keep feeder cattle prices up, despite feeder and fuel costs, but it may well be into fall before we find out.

It will be an interesting summer for market watchers.

World oil price hits agriculture double

It's bad enough to run the family chariot down to the gas station for a serving of that $4 petrol.

Those in the worst shape are those that make their living using fuel, like truckers. Even worse are farmers and ranchers, who not only run trucks and tractors over the soil on $5 diesel, but use fertilizer made from oil, pump irrigaton water using oil or natural gas, and then ship the resulting crop on trucks whose fees are jacked up because of high fuel prices.

This is a serious economic dislocation, and it is needless, if only the liberals in Congress would stand back and let the free enterprise system solve it. The United States has 139 billion barrels of oil readily accessible in Alaska and off the coasts of California, Florida and Texas that Congress will not allow to be drilled, because they are "environmentally fragile."

Using old methods, with less "green" mentality, that could once have been the case. Modern equipment and technology leaves very little footprint and requires dramatically less land than it once did to drill for oil. The various oil spills of the last 10 years have led the way in developing "spill proof" technologies. Actual environmental damage, and particularly potential, damage are miniscule now days.

Can you imagine what 139 billion barrels of non-OPEC oil would do to the world market and the price of oil? Just watch how OPEC prices oil, when suddenly the United States starts importing about half as much. The free enterprise system, if allowed to function unfettered, can solve this problem.

What we have are Big Government Liberals, who want to control the economy, people's lives and livelihoods--making everything completely dependent on them. It is a Robin Hood socialist scheme, to level the playing field, so everyone is equally poor and dependent. They don't want the oil crisis to be solved. They want oil prices to go even higher, so they can have even more contol.

Biggest beef day of the year coming up

The biggest single day in the year for beef sales and consumption in the U.S. is Father's Day, set this year on Sunday, June 15.

This isn't just a coincidence or an accident, but follows decades of planned promotion, first by the industry's original women's auxiliary, the Cowbelles, and then picked up as a major beef promotion by the National Livestock and Meat Board.

Outdoor barbecues, big roast beef and prime rib dinners, steaks any way you cook them--men love this, and wives and daughters cook it all for Father's Day, because in the family, Dad's the lead beef eater. It's an easy way and safe way to make his day special.

This all just existed in the lore of the beef industry, until one day USDA and Beef Board statisticians starting breaking out the beef sales data and extrapolating all nuances and buildup. Lone behold, Father's Day is a big beef sales day.

Grocers and restaurants have been telling them that, as the year's of special Father's Day promotions built their business and is now annual staple of the promotional calendar. Wholesalers are booking product now, to have it ready to go as the orders pour in.

The trickle-down effect for farmers and ranchers, feedlot operators and others in the beef production chain is real. The original promotion percolated up from these grassroots, and now they annually harvest the results.

Green grass always creates optimism

Feeder cattle prices for critters light enough to turn out on grass were up $1-$3 at the local auctions last week. There is no way you can pencil probable fall cattle prices, when they come in off the range, and other input costs, and make them show a profit at these prices.

What former Fed Chairman Alan Greenspan called "irrational exuberance" is at play here. There's been rain, and good winter moisture, in enough places to create very good spring grazing conditions. Once ranchers see that grass, they just have to have something to turn out on it. They head to the sale barn, bid against each other for cattle, and drive up prices. It's great for cattle sellers, but maybe not so great for buyers.

A lot can happen between now and the fall cattle marketing season. A grain glut could drop prices. Cattle numbers could be shorter than USDA is estimating, creating higher fall prices than is currently predicted due to a cattle shortage. Bad weather could wipe out some cattle, or create drought that will force cattle to be sold early--elongating the marketing cycle.

Buying spring grass cattle is a big crapshoot in the best of years, and more than that this year. There will be winners and losers, as there always are, and it's too early to predict who those will be.

South Korean beef circus continues II

Today the government of South Korea, as it was predicted here and elsewhere, acquiesed to street demonstrators and vegetarian animal rights radicals, to postpone bringing in any U.S. beef and to not allow it from animals older than 30 months.

Both these conditions are opposite what was agreed to in the trade accord recently negotiated with the U.S. Despite talking bravely at the start about toughing it out and upholding the deal, the South Korean Premier caved in the face of radical pressure.

This is particularly hypocritical on both the Premier and the Demonstrator's parts, as South Korea leads Asia and rivals European nations in the number of confirmed BSE cases in its domestic cow herd. The U.S. has two cases, both in cattle imported from Canada. South Korea is now over 30, in a much smaller cow herd.

Rather than foisting its risky domestic beef off on the Korean consuming public, the government needs to import safe, wholesome U.S. beef to protect its citizens. This is the tact the Premier needs to take, rather than wringing his hands and trying to placate everybody. He obviously hasn't learned the truth of the old saw "He who walks down the middle of the road gets shot at from both sides."

This, in microcosm, is the story of world trade. It is governed by politics, not economics. It is a matter of "what have you done for me lately," and which pressure the politicians making the decision can best stand up to.

Now it is a matter of President Bush and Congress holding Korea's feet to the fire, refusing to approve any of the trade deal without the key beef portion that Korea is trying to renege on. Korea needs the U.S. market and low duties for its manufactured goods, a lot worse than the U.S. needs to sell ag products in Korea.

President Bush, something of a rancher and cattleman himself, from the great cattle state of Texas, has repeatedly stood up for the beef industry in trade negotiations. It is likely he will again, on the Korean pact, but Congress, in an election year, is a whole different matter.

Nation's cowherd probably dropping in size

Most statisticians are forecasting a drop in size in the nation's cowherd in 2008, due to several factors.

One certainly is high feed costs. Corn and other grains at record levels make it impractical to keep any more cattle than a rancher can winter on just his own forage. The competition for corn with the ethanol industry has driven prices through the roof, and with government subsidies of over 50 cents a gallon, ethanol manufacturers can afford to buy it and ranchers can't.

High fuel costs make all cattle industry inputs more expensive, and particularly transportation. Cattlemen will be shipping fewer cattle shorter distances to compensate, which mitigates in behalf of holding down herd size.

Weather, both drought and excessive moisture and storms, has forced cattlemen to cull cows due to shorter pastures. It makes it even less likely they will hold back heifers to breed, with higher costs and less feed. A certain number have to be held back just to keep numbers even, and more held back to expand herds.

Neither is likely to happen, analysts say, this year. With calf prices at profitable levels, it makes more sense to take the money and run, rather than not only hold on to heifers, but do so on a higher-cost basis.

In 2008, it just ain't gonna happen.

It's gotta fit the box

Meat packing is a mass-produced, factory operation. As such, all the automated equipment and processing lines are set up to fit an 1100-pound carcass. Carcasses significantly smaller or larger than this have to be hand-processed, costing the packer a great deal more--costs which are discounted off the price received by the cattle owner.

That's why all breeds of cattle, and cross breeders of commercial cattle, stress uniformity in breeding and seek the optimal sized animal. In the biz, it's called "fitting the box."

Primal cuts of beef are shipped from the packing plant to wholesalers or meat purveyors in uniform-sized cardboard boxes that stack together well on pallets and on trucks, hence the term.

Breeds or breeders who consistently vary their animals from these size standards pay for it in the end. So-called miniature breeds, which are promoted on the basis that they are easier to handle on small farms, easier for 4-H kids to handle or because they're cute--ultimately don't work, both because their carcasses are too small to fit the box, and the feed savings in feeding a smaller animal don't compensate for the discounted price on fewer pounds of beef.

People with lots of feed, frequently that they've raised it themselves, feed cattle to heavier weights because they have the feed, but ultimately receive less from packers, who must hand-process their carcasses. It's a poor return on their grain.

Freedom of choice is one of the vaunted rights cattlemen trumpet, but its limited by the size of the box, as in "boxed beef." It's a lesson some learn the hard, costly way.