Ag commodities dive, recover, with stocks.

Farmers and ranchers are not immune to the stock market crash and recovery. Monday was truly Black Monday for owners of livestock or grain crops, as the futures market crashed and drove cash prices through the floor.

This time of year, many farms and ranches get their annual income in one week, from the sale of their calf crop or grain crop. A precipitous drop like Monday's, over which they have no control, is a disaster.

If you own stocks and bonds, you only took the hit if you sold them. As a farmer and rancher, if your crop came to market Monday, you took the full hit. Even if it were possible to pull it back off the market--which is tough, since you've already paid to ship it for sale that day--you incur substantial costs.

Commodities recovered somewhat Tuesday, just like the Stock Market did. But that was too late for many hapless farmers and ranchers. The Big Boys on the Chicago Mercantile Exchange and the Chicago Board of Trade, where most commodities trade, only theoretically lost money Monday, and probably even made money from buying newly cheap contracts at the bottom Monday and selling them at a substantial profit Tuesday.

If you own actual, existing cattle or grain on the ground, you can't practically do that. You take the hit, and hopefully have enough left to move on. Such is the lot of the family farmer or rancher.

U.S. beef still the preferred world choice

Tonight I ate dinner with a visiting missionary from Thailand, and took him to a medium-range U.S. steakhouse. It was sure all right, but definitely not in the Morton's, Ruth's Chris or Capitol Grille class.

We were just getting acquainted, and before he found out the breadth of my experience in the beef business, he proceeded to regale me with how one of his favorite benefits in visiting the U.S. is the beef. He travels the world, particularly Asia, but says he cannot beat beef in the U.S., especially for the price.

A good U.S. beef steak in Thailand, if you can find one, is very pricey. My daughter lives there, and I went there for Christmas to see her. We always have Prime Rib for Christmas dinner, and she wanted to continue that tradition. It was costly for a U.S. meal of imported U.S. beef, but worth it. Not having eaten U.S. beef for a year, my daughter was doubly impressed. But at some $40 a piece in Thailand, you sure wouldn't do it very often.

We in the U.S. beef industry trumpet these facts all the time, but sometimes we forget how consumers from other countries feel about our beef.

I was reminded tonight, and we must not forget that we do produce a vaunted and valued product. We must not let our guard down. Then we will surely continue to profit from foreign marketing. Definitely, the market is there and U.S. beef is the first choice.

Europeans slowly thaw toward U.S. beef

The hypocritical trade barriers to importing U.S. beef are slowly falling in Europe.

Major tourist hotels that cater to Americans are demanding better beef than the used dairy cows slaughtered in Europe for that purpose. A small amount of U.S. beef is quietly making its way onto the continent for the hotel restaurant trade.

The World Court has knocked down all the defenses Europe keeps throwing up to keep U.S. beef out and protect its farmers. Europe was the King of BSE a few years ago, and killed tens of thousands of cattle in an attempt to eradicate it. The two cases in the U.S., both in dairy cows imported from Canada, so pale by comparison, that this cannot be credibly used as an excuse.

The U.S. has much stiffer regulations on growth promotants in calves than the Europeans themselves do, so this one doesn't hold water either. What beef is being allowed in is all-natural, with no hormones or antibiotics used in raising it. Independent tests done on European beef show high levels of stilbesterol, the most dangerous and least used of the growth stimulants.

It is glacial progress at best, but encouraging to U.S. cattlemen, nonetheless.

Cattle carcasses gum up hurricane recovery

No one has an accurate count of how many cattle were lost in Texas and Louisiana in the Hurricane Ike debacle, but estimates are as high as 50,000 head.

What is known, is that as the water recedes in the affected areas, the dead cattle carcasses are rotting and polluting streams and drinking water--becoming a major public health menace.

It took longer than expected for the water to recede in many areas, so the decay of dead animals got a head start on the clean-up workers--becoming a real problem now. Quite properly, the focus has been on restoring electric power and safe drinking water too, so the rotting carcasses took a back seat.

It is doubly painful for cattlemen, because of not only the cost of losing substantial portions of their herd, but now the clean-up of their ranches and repair of fences and grazing.

The cattle that are alive are frequently far from home, as they took grazing anywhere they could get it, with no fences to stop them.

It is hard to look a trashed-out rancher in the eye, who has lost all or part of his herd to the hurricane, and make him see anything good that comes out of the carnage. But from a national beef industry perspective, the severe losses of mother cows do help keep overall cattle numbers in check and cattle prices higher.

It's hard to see, in the face of such devastation, but there is a minor silver lining in the cloud.

Ag a credit-based business, liquidity squeeze real

For the average American, the inability of banks to make loans due to a lack of liquidity is more of a concept than a reality.

Unless you're on the cusp of buying a home, getting a student loan or need a second mortgage to finance your business or bail out a debt situation, you're largely unaffected.

For the average farmer or rancher, it is not a concept. Most get a loan at the bank each year to finance putting a crop in the ground or buy bulls to breed cows, as well as provide a paycheck to keep the family going, Once a year, when the crop or calves are sold, they pay off the loan and hopefully have a little profit left over.

Most small businesses operate this way. They are seasonal, in one way or another, and use credit to tide them over the down times. When banks don't have money to lend, they are up a tree. Some can figure out how to scrape by, borrowing from Peter to pay Paul, but many can't.

Their liquidity crisis is just as real--maybe more so--than the big boys. A few might get help, if drought or hurricanes can qualify them for low interest loans from the U.S. Department of Agriculture. This could tide some over, but for the majority that finance each year with the local bank, it could be tough times indeed.

Financial crisis blowback, numbers sink cattle

Fall is always a challenging time for cattle prices, as the big numbers of calves come to the market from summer grazing. Its a supply-and-demand situation, and as the supply increases, demand doesn't always keep up.

It's even more challenging this fall, as the nation's financial crisis of failed home mortgages, Wall Street bail-outs and blowhard politicians cause people with money to grow more conservative by the hour, hanging on for dear life. At the cattle auctions this week, many buyers were on the sidelines, waiting for things to sort out. Feeder cattle were $2-$4 lower, fed cattle were only steady when they should be going up in the face of tight supplies--and even cull cows and bulls were lower.

It is easy to yawn, and say "so what?" if you're not affected. But for many farmers and ranchers, this is their annual payday, that won't come around again until next fall.

The market is being ruled by panic, speculation and fear rather than cattle industry fundamentals, which are sound. Supplies are tight, both in slaughter-ready cattle in the feedlots and the numbers of calves and yearlings available to restock them. Fundamentals would dictate that prices would stay strong, and maybe even go up.

But external forces beyond the control of the individual cattleman, and even the whole industry collectively, are calling the shots and costing the industry money.

Raising cattle is a risky business at best, what with weather, disease and balky markets to contend with. You're prepared for those, and even expect them.

But a Wall Street crisis percolating down to the ranch gate? Who'd a thunk it?

Cattlemen not baffled by Google "discovery"

Those ubiquitous spies from the heavens, relentlessly staring down at us 24 hours a day by satellite--Google and Map Quest, among others--thought they'd discovered groundbreaking new scientific truth, when they observed that cattle out grazing always face north to south.

This has been repeatedly publicized by the popular media like the 7th Wonder of the World. If they only knew.

They were sure that it was the magnetism of the earth's core, or some supernatural revelation beamed directly into cow's brains that made them line up this way.

Well, cattlemen do know. More than one veteran rancher I've talked to said it's very simple. The prevailing winds blow most often from north to south. By lining up with the wind, cows keep flies off, and rain or snow pass them by. They are not fighting the wind, but using it.

A veteran, old-time pilot told me that they have always navigated their "string and baling wire" single engine plane by watching how the cows down below were lined up. and selecting their direction accordingly.

There you go. The latest high tech doesn't always expand knowledge. Sometimes, it needs to acquire some.

Fall work underway on the ranch

There's no doubt what's going on at the average American ranch this week and last. You don't even have to call and ask.

It's one of the busiest weeks of the year, a demanding and important time for the economic health of the business side of the ranching enterprise.

The grazing season is over on public lands, which are leased for a specified number of days of grazing each year. When the time is up, it's up. The cattle have to come home, where there isn't enough feed to keep them all very long. Important decisions must be made quickly.

If the calves aren't weaned from their mothers, that must be done. In any case, they must be evaluated, deciding which females are worth keeping in the herd as cows, and if there any steers that should be marketed as show or club calves. The rest of the calf crop is either already sold on the summer video events and must be shipped by the agreed-on date, or ready to sell at the local sale barn or to an order buyer representing a stocker or feeder buyer.

The cows must be preg-checked, and the open ones culled. The number of these will influence how many heifers will be kept out of the calf crop. It is a crucial economic decision, as an open cow means no calf to sell for cash. This is very expensive. The factory didn't produce.

This fall is the major payday for most ranchers. There's little dibs and drabs of income here and there, from selling feed and cull cattle, but marketing the calf crop each year is the major source of a year's earnings.

Yes, it's an important week, out on the ranch.

City folks get used to it: ag's been bailed out for years

Those primarily from the Right, who are decrying the $700 billion federal bailout proposed by President Bush for bad mortgage loans, need to talk to their rural brothers: this is nothing new, with primarily drought or excessive moisture as an excuse, low interest loans and outright grants have been funneled to farmers and ranchers for decades.

Subsidies on crops like peanuts, tobacco and cotton, as well as corn, wheat, oats and barley--have repeatedly distorted free markets, leading to all kinds of twisted and contorted results. Corn subsidies are the most obvious ag subsidy to convolute the market: such federal largesse is why ethanol from corn ever made sense in the first place, and why corn in recent years has jumped from a dollar or two a bushel to over $7--with consumers paying the bill in high gas and food prices.

Peanuts and tobacco are marginal crops, kept in business by federal acreage allotments and subsidies. That why these products are so expensive on the consumer market, and you have the odd spectacle of the government subsidizing farmers to grow them on one hand, and spending lavishly to urge consumers not to buy them on the other.

We don't know yet how the markets will react to the federal bailout of bad mortgage loans. But almost certainly, some market distorting effects will result.

The economists Chuck Murray and George Gilder have written "that whatever you subsidize, you get more of." They were referring to welfare, and its bad effects on work, personal responsibility, character and morals.

Presumably, just as in agriculture, we'll see more lenders that need bailing out from under bad loans, rather than fewer--and more lax lending standards, once its clear the government will save you from yourself.

Farmers are a great example.

The more things change . . .

Despite all the smoke and mirrors, hue and cry--financial markets ended the week right where they started.

After a stirring 370 point rally Friday, and a couple of hundred the day before, the stock market closed at roughly the same level it had opened on the previous Monday. Fed cattle sold steady with the previous week, at $99 live and $154 dressed.

All the hand wringing and finger pointing by the politicians, who are meeting in smoke-filed rooms in Washington D.C. over this weekend in emergency session to craft a bail-out bill for the nation's economy, it's all pretty much where it started. Last weekend featured the bailout of AIG and Merrill Lynch, and the refusal to bail out Lehman Brothers. Then came the raising of some $200 billion in short term liquidity loans from the world's reserve banks to ordinary bankers.

None of this seemed to be good enough, and after Thursday meetings of Congressional leaders with Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke--from which reportedly people like House Finance Committee Chairman Barney Frank, Speaker Nancy Pelosi and Senate Majority Leader Harry Reid emerged "ashen faced," Congress supposedly is set to pass yet another massive bipartisan bail-out bill before they adjourn for the really crucial fall campaigning break at the end of next week.

The nation is running out of "emotional on-edgeness" and is starting to accept crisis as normal and usual. The gut-wrenchingly overly dramatic is only that way if you let it be--and the public is started to be innurred and seared to the point of numbness.

Cattlemen and farmers face risk and crisis almost every day, by way of weather, pestilence, fickle markets and the folly of politicians. They take it in stride and move on. They have a unique perspective and ability to digest the day's events without panic or breathlessness.

If only the press and politicians could adopt some of that.

Corn suddenly not so rosy

It was thought in the spring, when planting corn, that it was like sewing gold into the soil. Corn futures approached $7 a bushel, and food prices soared as corn refiners hiked the prices for sweeteners and thickeners used in the food processing industry for things like soda pop and baked goods.

The folly of futures trading has played out once again, as the reality of actual corn being harvested by real farmers driving real tractors and combines, on real land--plays out.

Early season cold weather and drought stunted early corn growth, so the crop is smaller, some 8% by U.S. Department of Agriculture guesses, as well as later in maturing. The harvest could be delayed 1-3 weeks in many areas, maybe even bumping up against an early freeze and really decimating the crop.

Now corn futures have dropped like a rock, as have cash prices for corn. It is suddenly not so daunting to feed corn to livestock, and as an input for ethanol, a more affordable commodity.

Even the corn farmer is still due to receive a profitable price for his corn.

Just not the windfall he expected in the spring. Reality trumps dreams and guesses every time.

Wall Street mess hits commodities hard

America's ranchers and farmers have a strong, if unintended, tie to the financial markets. Even if they don't actively and personally participate, the outcome of the prices they receive for their crops and meat animal production is determined there.

We're speaking, of course, of futures trading on the Chicago Mercantile Exchange and the Chicago Board of Trade, where contracts in most commodities are traded, including hogs and cattle, poultry, grains, lumber and other products. Many farmers and ranchers intensely dislike futures trading and its effect on their markets--but it is nonetheless a reality that they have to live with.

Starting last winter, and on into this spring, as stocks and bonds whipsawed every which way, investors took refuge in commodities, feeling they were safer, as they were theoretically backed by actual assets, such as livestock, grain in the bin or field, etc. This alleged safety is questionable, but for those holding secondary paper backed by sub-prime mortgages rapidly spiraling into foreclosure, they thought the commodities markets looked real good.

This resulted in a pretty good burble in commodity prices, with lots of speculators suddenly entering the market, willing to buy the other side of contracts on cattle, hogs, etc. put out as "hedges" by owners of the underlying commodity.

The chickens came home to roost this week, as investment funds liquidated their futures contracts and prices plunged. Corn futures dropped the most, probably because they had attracted the most outside investment due to ethanol. Livestock felt it too, with prices down $1-$2 today on Merc, when the more normal move is a few cents per day.

It falls back to the old saw that whatever goes up must come down. Now that the futures markets are back to mainly agricultural owners, with the speculator money evaporating or chasing a new dream--the earth is shaking.

Agriculture is not immune from the travails of Wall Street.

COOL deadline creating havoc for cattlemen

Country of Origin Labeling (COOL) is set to take effect September 30 in all meat products governed by the U.S. Department of Agriculture, including beef, pork, veal and lamb.

The idea is to create traceability for all meat, so that if BSE, E.-Coli or some other disease is found in a particular shipment to a foreign country, it can be traced back to its source. In concept, this sound like a great idea, that will eliminate disease once and for all.

In practice, the burden of record keeping is very onerous and costly for the producer, who must bear it alone. Once again, the federal government laid out stout mandates, but no technical help or money to implement it. It might well put small producers out of business, and later be found to contain widespread fraud and a paper trail that leads to nowhere.

Producers unintentionally brought this on themselves. Long before BSE and boycotts of U.S. beef, a group of well-meaning cattlemen thought it would create a marketing coup for U.S. beef to be labeled as such. They finally got Congress to pass such a law many years ago, which has been postponed and stalled ever since.

Voila! BSE came on the scene, and federal regulators saw this law already on the books, which could be manipulated to create traceability for meat products, without having to get Congress to pass new legislation. The original intent of the proponents of the law was subverted and changed--bringing the steel trap of government regulation to the ranch gate.

Producers across the country rue the day they supported the original law, but the genie is out of the bottle, and they must comply. Interesting days are ahead.

Fed cattle supplies short--retail beef higher

This week, the first week of fed cattle trading after the Labor Day holiday, the tightness of fed cattle supplies became apparent, as prices held steady. Futures reflected what the USDA Cattle-on-Feed report shows and feedlot records bear out--there just aren't enough cattle out there to fill the feedlots or fully satisfy retail demand.

This is bound to make fed cattle prices go up at the feedlot as the fall wears on, which in turn will be reflected in higher retail beef prices at the meat counter. It is classic supply-and-demand economics in action.

Maybe consumer beef demand will drop to meet the expected supply, but probably there is demand available at a still-profitable level that will be unable to be fulfilled with domestic beef. The supply situation will ease as the new year 2009 approaches, but will tighten up again after the spring cattle run is over.

This is because many cows were slaughtered due to drought and will be not be having calves this year. Industry fundamentals, including high corn prices, are preventing widespread holding back of heifers to breed, so an expansionary phase has not begun yet.

That's why those steaks will cost you more at the meat counter.

Farm land values strong and rising

The real estate market for farms and ranches is a great deal stronger than that in residential or commercial property.

Farms are sold on the basis of the income they'll produce, and with strong grain prices--particularly corn--land values have risen between 11 and 17%, according to the Federal Reserve. Ranches have stayed strong too, as cattle prices are at profitable levels, but are probably on a less steep trajectory than farms in the cornbelt.

The credit crunch definitely affects the farm and ranch real estate market, with loans-to-value of much more than 50% are hard to come by. The main action right now is in seller-carried financing.

This all has certain positive aspects for lovers of rural America and the American agrarian tradition. Speculators and investors seeking to convert rural lands into urban and ex-urban areas has slowed. Farmlands are selling more on the basis of what they will produce as farms, rather than as real estate developments.

It is a small trend so far, but there are people moving back to the country to farm and ranch, since we are in a profitable period for doing so. It isn't necessarily easy, with high input costs, but is more possible to do than in many years.

It is a bright outlook right now, for rural real estate.

Palin does mention farmers . . .slightly

Sarah Palin did mention "the farmers here in this great state of Minnesota" in slamming Obama's tax policies, and their effect on small business. She talked about her sister's new gas station and other small businesses that need to be encouraged, not torn down, by excessive taxation and federal regulations.

It was very effective, and showed that a lot of Palin's role will be to relate to the little guy. She introduced her husband Todd, and noted that he was a proud member of the United Steelworkers Union, and world champion snowmobiler.

The one reference was the extent of ag issue mentions at the GOP confab, about like the Democratic parley last week in Denver. Once the Iowa caucusses are over each election year, so are the high level discussions of farm issues.

The GOP platform, which has already received about all the notariety and publicity it will ever get, does call for ending the mandates to use ethanol in motor fuels. This would knock the props out from under this highly subsidized, inefficient fuel and take corn farmers back down the slippery slope.

Actually, this is inevitable eventually and any smart corn farmer is banking his windfall profits while the getting is good, to be ready to batten down the hatches when better alternatives to corn-based ethanol are fully developed.

If nothing else, the inclusion of this plank in the GOP platform speaks volumes about the power of the livestock lobby and particularly the food processing lobby versus the corn lobby--in the power structure of Washington. Now that food prices are rising smartly because of the high cost of corn for sweetner and fattening livestock--corn-based ethanol's days are clearly numbered.

Crucial fall decisions facing cattlemen

As the cows and calves come down off the mountain from summer grazing on Forest Service, Bureau of Land Management or state lands, two things happen: the calves are weaned and sold, and decisions are made about whether to keep the cows for another year.

Cows that didn't have a calf, had a substandard calf, got injured over the summer or are past 8 years old, will be shipped this fall. The best of the heifers will be sold for breeding or kept in the herd to replace the cows that are culled, and the bulls steered to ultimately become choice beef.

The cattle must return to the rancher's private property for the winter, so he must sell at least the calves as his privately-owned land probably won't support them all. In a year like this one, when feed is expensive to buy or your own feed is short because of drought, one strategy is to stretch the feed by selling more cattle than usual. Selling off more cattle might also allow a rancher who raised feed to sell some of it at today's good prices and generate even more cash.

This is likely to happen in many cases, because cattle prices are pretty good, and its smart to generate cash and pay down debt. Bankers are pressed by the mortgage lending crisis, so aren't in a generous mood. If this leads to more cow culling and fewer heifers being held back to breed, it'll mean fewer calves are born next year and beef supplies will be tighter.

Decisions, decisions. These are the ones cattlemen are facing right now.

Palin big on state's rights in managing land

GOP vice presidential nominee-to-be, Alaska Gov. Sarah Palin, is a major fighter for allowing states to manage the lands within their borders--state, private or federal. She even clashes with her boss on this issue, John McCain, who is a misguided environmentalist wannabe--and among other things, opposes drilling for oil in ANWR. Palin is a big-time proponent of ANWR drilling and exploration.

For agricultural and rural interests, this is vitally important for livestock grazing, water rights and fire management, among other things. No "one size fits all" policy formulated in Washington can possibly fit the diverse topography of the whole United States, with only the state and local government on the scene having enough knowledge and perspective to say what ought to be done with their local land mass.

Coming from the "big empty" of Alaska, the biggest state in the U.S. in land area, Palin knows first hand how incompetent the federall government is in handling local problems. Left to their own devices, Alaska has returned hundreds of millions of dollars to local citizens in profits from oil and minerals development--$1500 per capita in just the last year alone.

Not every state has this kind of natural resource bounty, but it does show what the local folks are capable of doing--particularly when you see the feds out-foxed repeatedly by oil, timber and mining companies on federal lands. Left to their own devices, the locals--who still have to live there after the drillers and miners are gone--have done an admirable job of balancing resource development with environmental preservation.

Unlike the Washington D.C. environmentalists, who just want to lock everything up and let us freeze in the dark, the locals have a sixth sense about preserving their land and still producing revenue and badly needed resources from it.

Sarah Palin understands this, and can bring a badly-needed new perspective to Washington--which has the liberals and environmentalists scared witless.