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.
Saturday, June 14, 2008
Friday, June 13, 2008
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!
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!
Thursday, June 12, 2008
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.
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.
Wednesday, June 11, 2008
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.
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.
Tuesday, June 10, 2008
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.
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.
Monday, June 9, 2008
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.
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.
Sunday, June 8, 2008
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.
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.
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