From the field

Opinion
Apr 6, 2012
by WLJ

In a 1-inch rainstorm, 27,154 gallons of water fall for every one acre of ground (U.S. Geological Survey). Compare this to the amount of rainfall the drought throughout the southern U.S. missed out on a year ago and you soon realize how much water that area didn’t receive. 

The mild winter much of the nation has experienced can be felt with similar reactions. Much of California, for example, is ranging from 30 percent to 75 percent of annual precipitation thus far into the calendar year. That equates to an average of 12,898 gallons of water that each acre has gone without thus far into the year.

Fortunately, in the last 30 days, California has received almost 4 inches of rain, that’s 108,616 gallons of water per acre. Still far from the needed moisture to reach a normal precipitation year, the received rainfall has drastically helped most agricultural markets.

Immediate results are leaving many cattlemen with a big sigh of relief, especially those who recently purchased females to build back their herds from the drought of 2007-2009. In those three years, the California beef cowherd decreased by almost 150,000 head, and in the last two years, many of these reduced herds have been attempting to rebuild.

This rebuild drove female demand up 40 percent through California auction markets. At special female sales throughout the state, many of the top end commercial bred cows began reaching the $2,000 mark and beyond. For most producers, the question arose as to how these cows were going to pay for themselves. In ‘traditional’ prices, in which a 600-pound steer calf was hovering around $100/cwt, these female prices didn’t make financial sense. Fortunately, we haven’t seen those prices in almost 10 years. Making these females pay for themselves has become more management induced. Now, with that same calf reaching almost $160/cwt, this increase, not surprising enough, is 37.5 percent.

As you would expect, we have all seen our inputs increase as well. Fortunately for many, the global demand for beef has driven our values up more than our inputs have increased. This situation allows many producers to take advantage of additional capital as a result. It is what we do with this capital that becomes a crucial turning point in our business, in my opinion.

Just as each 1-inch rain storm can bring so much aqua value to one acre of land, the value that our dollar has when compared to the other nations is the determining factor of our competitiveness in the global economy. Currently, the value of the U.S. dollar has decreased 30 percent (stockcharts.com) since 2002. The initial reaction is that of disdain and discontent; however, the weak dollar helps create opportunities to help recover through a recession.

One of these opportunities comes in the form of lowered interest rates. For one example, current auto loans are between 2.99 percent and 4.99 percent, compared to 7.99 percent in 2007. Although lending regulations have tightened, with our current beef demand, producers have the opportunity to renew credit, operating and investment lines. Reducing operation debt, refurbishing facilities and creating funds that will ensure future production of better cattle is a very exciting and optimistic outlook for beef cow/calf production.

Another opportunity that the weak U.S. dollar creates is that of foreign investments. The weak dollar means other countries can purchase more exportable goods from our nation with fewer dollars than they could 10 years ago. We are seeing this happen day-to-day as global beef exports have increased 23 percent as of Feb. 23, 2012, and are expected to increase an additional 11 percent by the end of 2012, according to the U.S. Meat Export Federation. This adds competitiveness to our products each day, in turn allowing domestic markets to compete against export markets for feeder cattle, allowing the current trends to continue, at least in the short term.

In summary, just as another inch of rain can immensely impact a single acre of ground, changing market conditions can have a trickle-down effect on feeder cattle prices. Changing factors in the near future from economic, political and environmental impacts have the ability to change our current markets. But with export markets becoming more available and our ability to operate on an inexpensive dollar, our current market conditions are rewarding and long awaited. — LOGAN IPSEN

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