August 22, 2005
Last week, Western Video Market held its annual two day sale at Little America in Cheyenne, WY. At the onset, sellers were a little nervous. However, as the sale progressed, the market was established and many yearling steers were trading at that $1-plus level; one set of 900-pound steers brought $114.25. On the calves, 400-pounders traded in the $140s, 500-pounders in the $130s, and the 600-pound calves in the $120s. In the broad picture, the market was good. Perhaps not as good as it was 10 weeks ago, but still very solid.
Fuel and freight were big elements weighing on the market and the basis on which cattle are traded. West Coast cattle were selling at an $8-10 discount to western Plains cattle. In northern California, diesel is costing $3.25 a gallon; one cattleman said it cost him $3.10 per loaded mile to ship a load to an auction market 180 miles away.
Corn prices have traditionally been one of the elements that would influence the feeder cattle markets. The rule of thumb is that for every dime increase in corn prices, a $1 per cwt decrease in feeder cattle prices can be expected. Now it would seem that every dime in fuel prices may have a similar effect.
I asked around to see if any of the cattle market analysts have figured in fuel costs as a market influence, and no one had. Andy Gottschalk, analyst at HedgersEdge, did say that for every $10 increase in crude oil price, $50 billion in discretionary spending was taken away.
Unfortunately, that hurts the cattle industry in two ways—the cost of getting cattle to market and the amount of money consumers will be spending on beef.
I spoke with several auction market operators about the Canadian border situation. Some said it had a major effect, while some said it had little to no impact. However, they all had the idea that the packing industry was going to inflict downward pressure on the market because of it. I’m not sure if the relationship between an auction market man and a packer will ever find harmony.
The slaughter cow market in the northern Plains and Northwest is in a precarious situation. The closing of Swift’s Nampa, ID, plant and Smithfield’s Gering, NE, plant has left the regions with few outfits to process cows. Shawn Madden, market operator from Torrington, WY, said they are shipping cows to BPI in Fresno, CA; Smithfield’s Green Bay, WI, and Phoenix, AZ, plants; and also to Caviness Packing in Hereford, TX.
These cow processors are putting a lot of freight on those cows, which will ultimately influence the price. I wouldn’t think it bodes well for cull cow season. Each of these cow processing plants is between 600-800 miles from Torrington.
On the more positive side of things, Darrell Wood, cow/calf producer from Susanville, CA, is busy trying to carve out his niche in the beef business. His group sells Western Grasslands Beef into a high-end grocery chain in California, “Trader Joe’s,” and several independent markets and restaurants. Wood said that they have been processing about 80 head a week and are about to go to 120 head a week. He said they are paying $180 per cwt on the rail. The product is labeled as “grass fed,” and carries Carolyn Carey’s “Born in the USA” label.
Wood said getting into the meat business is a whole new world and that he’s getting a real education about the packing and meat business. He’s been attending National Meat Association meetings and getting new perspectives about the packing industry and their issues.
Mac Graves, also with Latigo Marketing, is the CEO of Western Grasslands Beef. He started as a consultant but was interested in the challenge of getting this product to market. He was on his way to Bentonville, AR, to talk with WalMart about taking on their grass fed hamburger line. Graves also said that they will have an organic product on the market by the end of the year.
While many in the business are attempting to sue companies and the government for their perceived problems in the cattle markets, it’s refreshing to watch the development of small companies like Western Grasslands Beef and others.
The meat business is a tough business, but those niche markets are there and many smaller, more independent processors and producers are learning how to access them. — PETE CROW