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Cargill buys Pennfield assets

Cargill buys Pennfield assets

AFTER securing bankruptcy court approval, Cargill announced that it had submitted the winning bid to acquire two feed mills from Lancaster, Pa.-based Pennfield Corp. for $9.8 million.

The deal is scheduled to be finalized Jan. 21, and with Cargill assuming ownership, the strange and often confusing tale of Pennfield's bankruptcy will find a measure of closure.

The asset purchase agreement, which was first reported earlier this month (Feedstuffs, Jan. 7), entails feed mills and assets located in Mt. Joy and Martinsburg, Pa., and was facilitated through Pennfield's voluntary Chapter 11 bankruptcy filings in the U.S. Bankruptcy Court for the Eastern District of Pennsylvania.

Pennfield had filed under Chapter 11 to facilitate the sale of substantially all of its assets to a local investment group under the banner of Wellsource Nutrition. When that relatively unknown entity defaulted on the terms of the court-approved purchase agreement, Cargill stepped in to pick up the pieces.

Pennfield filed its preliminary bid with the court on Dec. 28, 2012, and the court allowed a simultaneous live auction to receive further bids during proceedings on Jan. 17 in an effort to generate the best value for the secured creditors involved in the bankruptcy. Cargill's bid was ultimately accepted.

"We are thrilled to add Pennfield's state-of-the-art facilities and knowledgeable employees to the Cargill family," said Rob Scheffer, group director for the company's Northeast region. "The deal not only expands our footprint in the region, but it also provides us with additional capabilities and opportunities to serve new customer segments and enhance our offerings for existing customers in the region."

Jennifer Horn, former Pennfield director of administration and a family member of the previous owners, will join Cargill as administrative team lead, responsible for overseeing customer and employee communications for the Pennfield operations. Horn said the outcome could not have been better for both employees and customers than becoming part of Cargill, a market leader and another family-owned organization.

Cargill's court-approved agreement did not involve acquiring the South Montrose, Pa., feed mill or a 165-acre farm Pennfield owns in York County, Pa. It is unclear, at present, what Pennfield plans to do with those facilities and associated assets that were not involved in the Cargill acquisition.

At $9.8 million, Cargill's winning bid was significantly smaller than the $15.6 million the court had accepted from Wellsource. The difference in bids and assets involved implies that some value still exists in the remaining Pennfield facilities and that it may be some time yet before the Pennfield saga finally draws to a close.

Volume:85 Issue:03

Is farmland bubble imminent?

Is farmland bubble imminent?

BUBBLES are an economic phenomenon that are notoriously difficult to predict and exceptionally easy to recognize in hindsight after they burst.

A run-up in farmland values in recent years has some analysts questioning if a bubble is indeed forming in the agricultural real estate market.

Farmers born prior to 1985 are acutely aware of the consequences of just such a bubble. During the farmland "bubble" of the late 1970s and early 1980s, U.S. farmland prices first boomed and then fell 27% from peak to trough, with deep consequences for producers, lenders and multiple industries connected to agricultural production.

According to a recent analysis from the American Enterprise Institute (AEI), the current U.S. farmland market is showing patterns similar to the infamous farmland bubble of the late '70s. While real farmland prices have been climbing for some 17 years, it is extremely difficult to pinpoint when, or even if, the market may fall.

AEI's analysis compares the run-up and peak in farmland prices of the previous bubble (Figure 1) with the acceleration in values seen since 1995 (Figure 2) and notes that, in inflation-adjusted terms, current prices have far surpassed the 1981 bubble's peak. Real farmland prices have experienced especially rapid appreciation since 2004, coinciding with the current bull market in grains and other agricultural commodities.

At least two Federal Reserve banks -- in Chicago, Ill., and Kansas City, Mo. -- and the Federal Deposit Insurance Corp. have held conferences in the past two years to discuss the potential pitfalls and perils of the farmland market, so the comparison is not entirely new.

However, AEI's analysis compares farmland values to other available vehicles for investment -- e.g., stock prices and housing prices -- and shows that over the past decade, "farmland prices have escalated far more rapidly and have been, unlike the other two, without a severe correction."

So far, at least.

Looking back to the 1970s bubble, several factors were at play, including federal policies in general as well as specific actions that created black swan events such as the Russian grain embargo. Among the biggest factors was rampant inflation, spurred by what many experts now describe as a very loose money-printing policy.

With farmland viewed as a strong hedge against inflation, investments poured in, and prices responded, right up to the point when the bubble burst. In inflation-adjusted terms, farmland prices actually fell 38% from boom to bust, with 1987 real farmland prices reverting to levels seen in 1972.

Assuming that the current trends in farmland prices will lead to a bubble effect might not be the right call, however, based on the factors leading up to and surrounding the escalation in value.

A recent policy paper authored by Jason Henderson of the Federal Reserve Bank of Kansas City and Purdue University agricultural economists Brent Gloy and Michael Boehlje argues that while current conditions may be following the "rhythms of the past," the single biggest difference between then and now is leverage.

"With rising incomes and low interest rates, farmers are making significant capital expenditures on equipment, machinery structures and land improvements," the economists wrote. "Yet, many farmers have not used excessively high levels of debt to finance capital investments."

History shows that boom/bust cycles in agriculture are typically accompanied by high levels of farm debt. Producers were, generally speaking, overleveraged in the late '70s, and when the bubble popped in the early '80s, they simply could not cash-flow their debt service.

"The 1970s surge in farm capital spending outstripped farm income gains, and farmers continued to use debt to pay for the investment boom," the paper explained. "Historically, farm capital expenditures averaged roughly 30% of net returns to farm operators. By 1977, capital expenditures on equipment, machinery, structures and land improvements jumped to more than 80% of net returns."

When incomes and profits fell and interest rates started to climb, farm asset values and capital expenditures plummeted, hitting a bottom in 1981.

Unlike the spend-happy farmers of the 1970s, producers have been far more restrained during the current "boom" cycle. According to the policy paper, despite a 28% rise in U.S. net farm income in 2011, tractor and combine sales held steady after a 30% jump in 2010.

"As a result, the ratio of farm capital expenditures to net income remained stable, hovering near its 10-year average of 40%," the economists wrote.

Perhaps the biggest "X factor" in the current boom/bust cycle is how the Federal Reserve will continue to handle interest rates to stimulate the economy. The "cheap money" policy of the '70s was one factor that encouraged farmers to take on irresponsible amounts of debt.

With current interest rates at historically low levels, the incentive may again exist for producers to rack up debt at the exact point the bull market could be trending lower.

Volume:85 Issue:02

Biofuel landscape still shifting

Biofuel landscape still shifting

DEPENDING on which side of the "food versus fuel" debate one stands, the renewable fuel standard (RFS) is either an inspired piece of legislation or the worst policy debacle in a generation.

Either way, it is clear that establishing the RFS in 2005 sparked a new era in agriculture and biofuel production.

As drought intensified last summer, RFS opponents -- as numerous and as critical as ever -- renewed calls for a wholesale repeal (or at least a temporary waiver) of the RFS mandate. While the Environmental Protection Agency declined to alter the standard, economists and market analysts have continued to evaluate the RFS and what it means for the grain and livestock markets.

Over the past 16 weeks, ethanol production has averaged roughly 813,000 barrels per day, and last week's production rate of 784,000 barrels per day was roughly unchanged from the start of that three-month period.

The data show that ethanol production tapered off as corn prices escalated in the latter half of the year. At the same time, imports of ethanol, which were almost nonexistent in the first half of the year, picked up significantly as U.S. plants idled or closed.

That tells only part of the story, of course, as the data also reveal that gasoline demand trended lower in the latter half of the year. At 10.31%, ethanol production as a percentage of gasoline demand hit a six-month peak in the week ending Jan. 4 as stocks hit their lowest point in four weeks at 19.9 million barrels (Figure).

Refiner/blender input of ethanol, hitting 714,000 barrels per day that week, was at its lowest point since the Energy Information Administration began tracking weekly production data in June 2010.

Bruce Babcock, a biofuel analyst at Iowa State University's Center for Agricultural & Rural Development, noted that the U.S. ethanol industry faces "numerous challenges" over the next two years.

"The 2012 drought increased corn prices, so profit margins will be low until at least the 2013 corn crops are harvested," he wrote in a policy brief last week. "A saturated ethanol market means that ethanol mandates that are scheduled to be implemented in the next two years can possibly be met only if ethanol prices are heavily discounted."

Of course, this means that profit margins would be squeezed even further after the next corn harvest.

Babcock estimated that because of the "blend wall" for 10% ethanol fuel blends, buyers of ethanol will use a significant portion of their banked credits under the RFS -- those renewable identification numbers (RINs) earned for previous gallons of ethanol blended -- over the course of the next year.

"If, as seems likely, imported sugarcane ethanol is used to meet the portion of the advanced biofuels mandate that is not met by biodiesel meeting its own mandate, then almost all the banked RINs should be used in 2013," Babcock said.

The economist's mention of biodiesel is not incidental as the situation regarding the profitability of corn-based ethanol production and the RFS could well lead to growth in the biodiesel sector.

University of Illinois agricultural economists Scott Irwin and Darrel Good explained in a separate analysis that while it might be tempting to conclude that the "new era" sparked by biofuel production is coming to an end, the opposite may, in fact, be true.

"It actually appears that the new era of higher crop prices could be extended well into the future as a result of the RFS for advanced biofuels that, in all likelihood, can only be met with a rapid expansion in biodiesel production," Irwin and Good said.

Their analysis suggested a clear economic advantage to domestic biodiesel production versus imported sugarcane-based ethanol from Brazil in meeting the advanced biofuel mandate of the RFS.

"The biodiesel advantage is large," they explained. "It also has potentially far-reaching implications for both U.S. corn and domestic fats and oils consumption in 2013."

The reinstatement of the biofuel tax credit, they concluded, changed the basic market realities for the biofuel and petroleum industries and made importing Brazilian ethanol much less attractive.

Volume:85 Issue:03

Court dismisses E15 challenge

Court dismisses E15 challenge

IN the latest round of the food-versus-fuel battle that is playing out in federal court, score one for the renewable fuel industry after a federal appeals court refused petitions to reconsider a ruling that tossed out a lawsuit challenging the Environmental Protection Agency's ruling approving a 15% blend of ethanol (E15) in the fuel supply.

Six members of a seven-judge panel voted to uphold the previous decision by the U.S. Court of Appeals for the District of Columbia Circuit dismissing the suit, which was filed by the Grocery Manufacturers Assn., the American Petroleum Institute (API) and groups representing large food producers such as Tyson Foods and Coca-Cola. The ruling confirmed that the petitioners lacked the legal standing necessary to bring the suit in the first place.

Dating back to 2010, the food, automotive and petroleum industry interests argued that using more corn-based ethanol in the U.S. fuel supply would harm engines while driving up the price of both food and fuel. In August, a three-judge panel dismissed the case because the plaintiffs could not prove that they were sufficiently harmed by the EPA decision approving E15.

EPA regulations state that E15 can be used in model year 2001 and newer cars, although auto makers have thus far refused to cover E15 use in most warranties despite EPA's extensive testing and subsequent ruling.

Growth Energy chief executive officer Tom Buis called the ruling a "major victory for the renewable fuels industry" that would open the door for further investment in new fueling technologies. He said the move is a "win-win" for consumers that provides both a choice and savings at the pump.

Renewable fuel advocates said E15 will reduce U.S. dependence on foreign oil, create jobs in rural America and improve the environment as a cleaner-burning fuel.

The American Fuel & Petrochemical Manufacturers (AFPM) criticized the court's ruling as a "procedural block" of the case rather than allowing the merits of the case to be heard.

"We remain concerned that EPA's partial waiver will result in significant mis-fueling and will harm consumers," AFPM general counsel Rich Moskowitz said in a statement. "EPA has authorized the sale of an ethanol blend that virtually every automobile manufacturer has warned will damage existing vehicles."

Studies backed by the auto and petroleum industries have suggested that E15 causes engine damage -- something that did not go unnoticed by the lone dissenting judge ruling on the legal appeal. Judge Brett Kavanaugh penned a five-page opinion saying the case could potentially have "significant economic ramifications" on the industries and consumers involved and argued that EPA would have lost the case if the court had considered the merits of the parties' arguments.

Moskowitz said the plaintiffs are "analyzing the decision" to determine if an appeal to the Supreme Court is warranted, citing Kavanaugh's "strong dissent" as cause for consideration.

 

Targeting RFS

Buis is one of the key spokesmen for the renewable fuel sector and stands squarely opposite the U.S. petroleum industry, which would like nothing more than a full repeal of the renewable fuel standard (RFS).

On Jan. 15, API announced a new advertising campaign geared toward just such a goal.

"The lengths to which 'Big Oil' will go to protect their absolute lock on fuel markets are astounding," Buis said. "While they often pay lip service to the importance of renewable fuel for our country's energy needs, at every turn, they work to undermine them."

Buis said API claims that the "blend wall" -- the level of ethanol production needed for blending into the fuel supply -- is proof that the RFS is "unworkable," but the blend wall exists because the oil industry has erected "every possible barrier to increased blends of renewable fuels."

Bob Dineen, president of the Renewable Fuels Assn., concurred, saying the RFS is a proven success.

"The RFS is stimulating investment in next-generation ethanol, which is coming to fruition before our eyes," Dineen explained. "The RFS is also driving the marketplace beyond ethanol's use as an additive, which was a fundamental objective of the program. Higher ethanol blends will be key to providing consumers the choice at the pump they want and the relief for the wallet they need."

Growth Energy, reacting to API's call for a repeal of the RFS, noted that since 2005, renewable fuels have decreased foreign oil imports by 32% while creating 400,000 domestic jobs.

Volume:85 Issue:03

Pet ownership sourcebook released

Pet ownership sourcebook released

THE American Veterinary Medical Assn. (AVMA) recently released its "U.S. Pet Ownership & Demographics Sourcebook," revealing which states have the largest number of pet owners and which have the fewest.

AVMA conducts the survey every five years and always includes a breakdown of pet ownership by state.

The most recent survey, conducted in 2012 but based on Dec. 31, 2011, numbers, reveals that the top 10 pet-owning states were: Vermont (70.8% of households), New Mexico (67.6%), South Dakota (65.6%), Oregon (63.6%), Maine (62.9%), Washington (62.7%), Arkansas (62.4%), West Virginia (62.1%), Idaho (62.0%) and Wyoming (61.8%).

The 10 states in 2011 with the lowest percentage of pet-owning households were: Rhode Island (53.0%), Minnesota (53.0%), California (52.9%), Maryland (52.3%), Illinois (51.8%), Nebraska (51.3%), Utah (51.2%), New Jersey (50.7%), New York (50.6%) and Massachusetts (50.4%). Washington, D.C., had a far lower rate of pet ownership at 21.9% of households.

Dog-owning states. According to the sourcebook, the states with the most dog owners in 2011 were: Arkansas (47.9% of households), New Mexico (46.0%), Kentucky (45.9%), Missouri (45.9%), West Virginia (45.8%), Mississippi (45.2%), Alabama (44.1%), Tennessee (44.1%), Texas (44.0%) and Oklahoma (43.2%).

The bottom 10 states in 2011 for dog ownership were: Illinois (32.4%), New Jersey (32.4%), Minnesota (31.9%), Maryland (30.8%), New Hampshire (30.3%), Utah (29.4%), Rhode Island (29.3%), New York (29.0%), Connecticut (28.3%) and Massachusetts (23.6%). Only 13.1% of households in Washington, D.C., owned dogs.

Cat-owning states. The top 10 states with the most cat-owning households in 2011 were: Vermont (49.5%), Maine (46.4%), Oregon (40.2%), South Dakota (39.1%), Washington (39.0%), West Virginia (38.1%), Kentucky (36.8%), Idaho (34.6%), Indiana (34.4%) and New Hampshire (34.2%).

Conversely, the 10 states with the fewest cat-owning households in 2011 were: California (28.3%), South Carolina (27.8%), Rhode Island (27.6%), Alabama (27.4%), Florida (27.3%), Georgia (27.3%), Illinois (26.3%), Louisiana (25.9%), New Jersey (25.3%) and Utah (24.6%). Washington, D.C., had the lowest rate of cat ownership, at 11.6%.

The "U.S. Pet Ownership & Demographics Sourcebook" offers a great deal of information on pet ownership, trends and veterinary care. It is available for purchase on the AVMA website at www.avma.org.

 

Volume:85 Issue:03

Alternative to physical castration quells boar taint

Alternative to physical castration quells boar taint

THE pork chain came together last month to learn about and discuss an immunological alternative to the physical castration of pigs to control boar taint.

Veterinarians, producers, nutritionists, meat scientists, packers, thought leaders, meat processors, food retailers, foodservice representatives, associations inside and outside the pork chain, government officials and trade media gathered in Miami, Fla., to openly talk about all aspects of a new product being rolled out in the U.S. by Pfizer Animal Health.

In opening, Gloria Basse, group director of Pfizer's Swine Business Unit, said Improvest represents a better way forward and most likely a paradigm change for the pork industry. It provides solutions, she emphasized.

Pork from some male pigs can have an offensive smell when cooked. While these naturally developing odors are completely safe, people, particularly women, can easily detect the odors, making it a necessity to control the odors to ensure a quality pork eating experience.

Improvest is a protein compound that works like an immunization to temporarily protect against these off-odors.

The product is approved by the Food & Drug Administration for use in the U.S. and by regulatory agencies in 60 other countries, including the European Union, Australia and Japan. It has been used successfully by farmers in some countries for more than 10 years, Basse noted.

The product is given as two subcutaneous injections into the post-auricular region of the neck of intact male pigs. The first 2 mL dose should be administered no earlier than nine weeks of age. The second dose should be given at least four weeks after the first dose.

Pigs should be slaughtered no earlier than three weeks but no later than 10 weeks after the second dose in order to allow the natural substances (androstenone and skatole) that cause the unpleasant aromas to clear the pig's system.

No hormonal or chemical activity is involved. Rather, the pig's own immune system works to temporarily provide the same effect as physical castration without creating the odors; essentially, the pig's testicular function is suppressed.

Extensive testing has shown that consumers could not differentiate between pork from pigs given the product and pork from physically castrated pigs.

Although U.S. consumers likely don't know about boar taint and don't know that pigs are physically castrated or why they are castrated, that doesn't mean the industry shouldn't be looking at whether there is a better way, according to Dr. John McGlone of Texas Tech University.

A Pfizer Animal Health polling of 6,000 consumers found that, upon learning about the options, 71-82% of consumers preferred an alternative to physical castration of pigs. More than half said they were willing to pay more for pork products if such a method was used, and 18% of consumers said they were even willing to pay 10% more.

Pfizer has set up four websites aimed at educating and communicating with various market sectors as well as consumers. The company also is extensively monitoring social media to keep the discussion fact based.

McGlone said research shows that intact male pigs that are immunologically castrated are subjected to less stress and have a reduced risk of infection and possible death. Mortality rates in treated pigs have been shown to decrease 1.6%, he said.

Shelly Stanford of Pfizer provided research data showing how male pigs given the product later in the finishing phase grew to their full natural potential, with all of the inherent advantages, until the second dose.

The advantages documented in studies included a 6-10% improvement in feed efficiency, a 4.2% improvement in average daily gain and a 2.0-2.5% increase in cutout yield. A full economic assessment is forthcoming.

In addition, treated pigs tend to be less aggressive than intact males and behave similarly to those that are physically castrated.

To determine the benefits of the product to the entire chain, Pfizer sponsored the first-ever ISO-compliant global life-cycle assessment for an animal health product that measured the environmental impact of allowing pigs to grow longer as intact males. The assessment concluded that this approach has the potential to reduce the industry's carbon footprint by as much as 3.7% versus physical castration, according to Garth Boyd of The Prasino Group.

"Treated boars grow faster than physically castrated boars, so it is solely a function of reduced feed consumption and improved feed efficiency," Boyd said.

Basse added, "This year, we suffered through one of the most significant droughts in history. The constant pressure to make sure that we conduct business with animal welfare in mind continues to grow. As we become more aware of our responsibility to environmental sustainability, we're forced to re-examine our practices. Adopting Improvest will help us meet these challenges head on and continue to be successful."

The rollout of Improvest in the U.S. is intentionally being done gradually in order to give packers and processors time to integrate it into and optimize their systems. Product availability will increase as experience working with intact males expands, Basse said.

Volume:85 Issue:03

Cabinet turning over

Cabinet turning over

ENERGY and environmental policy could take a different course during President Barack Obama's second term, and the fear is that they could get substantially more troublesome for agriculture.

Several key Cabinet and Administration officials are leaving town, setting up a path that may lean more left, according to insiders.

Ahead of the new year, Environmental Protection Agency Administrator Lisa Jackson announced her departure.

Last week, Interior Secretary Ken Salazar said he will be stepping down, and it is assumed that Energy Secretary Steven Chu will announce his resignation soon.

The oil and gas industry was often at odds with Salazar, and the agriculture community waged constant regulatory and legal battles with EPA under Jackson's watch.

Outgoing Washington Gov. Chris Gregoire is seen as a frontrunner for the EPA job but also could be a candidate for the interior post.

David Holt, president of Consumer Energy Alliance (CEA), an independent consumer group representing virtually every sector of the U.S. economy, sent a letter to Obama earlier this month in response to Jackson's resignation.

CEA urged Obama to nominate an individual who is committed to the "spirit of cooperation" and a new era in which public/private partnerships allow new projects to move forward in an environmentally responsible way. In the letter, CEA notes its commitment to work with the new administrator to help ensure a more effective EPA and a brighter future for America's energy consumers.

"As you consider who to nominate to be the next EPA administrator, keep in mind the difficult relationship among EPA, energy producers and consumers, which has been a tumultuous and oftentimes adversarial one in the past few years. This has, regrettably, created an EPA-led regulatory environment that saddles American businesses and consumers with higher energy costs and delayed a strong U.S. economic recovery," CEA wrote.

While speaking to the American Farm Bureau Federation, Agriculture Secretary Tom Vilsack noted that Jackson was willing to visit farms and ranchers and have frequent discussions with farm leaders, which he thought made a difference in terms of the attitude the administrators had about issues involving and affecting rural America.

"That constructive engagement must continue with the new administrator, and I pledge to you that I will do everything I can to make sure that happens," he told the audience.

 

Interior

In a statement, Obama said as interior secretary, Salazar "helped usher in a new era of conservation for our nation's land, water and wildlife."

In Salazar's resignation statement, the agency noted that under his leadership, the U.S. Department of the Interior played a keystone role in developing a secure energy future for the U.S. both for renewable and conventional energy.

"Today, the largest solar energy projects in the world are under construction on America's public lands in the West, and we've issued the first leases for offshore wind in the Atlantic," Salazar said. "I am proud of the renewable energy revolution that we have launched."

Mary Kay Thatcher, senior director of congressional relations at the American Farm Bureau Federation, noted that overall, Salazar received a positive response for the job he did, using his Colorado roots to help him adequately address western grazing issues and helming the Bureau of Land Management.

Former Sen. Bryon Dorgan of North Dakota is another name floating around for the interior post.

 

Importance to ag

Vilsack, who will be staying on as secretary of agriculture for Obama's second term, highlighted why it's important for farmers to take notice of who holds the key Cabinet positions.

He acknowledged that Chuck Hagel, the nominee for defense secretary, has garnered criticism. However, because Hagel is from Nebraska, he "understands and appreciates the roles of the bio-based economy" and would be a secretary who could champion that commitment, Vilsack explained.

"Farmers and ranchers in this country have a stake in who the secretary of defense might be, and we ought to express that," Vilsack said.

As for the treasury secretary, Vilsack noted that the department has a new market tax credit program that provides hundreds of millions of dollars in tax credits to support economic opportunity. He said the nominee needs to be questioned about his or her view on the new market tax credits and the ability to grow rural America.

Vilsack also discussed his efforts to help better educate the U.S. Department of Commerce about the positive impact rural America has on the economy and the importance of continuing that dialogue moving forward.

Volume:85 Issue:03

Cargill to idle Texas cattle plant

Cargill to idle Texas cattle plant

CARGILL Inc. announced last week that it plans to "idle" its beef cattle plant in Plainview, Texas, effective at the close of business on Feb. 1, citing the tight cattle supply "brought on by years of drought" in Texas and the Southwest.

The closing affects a workforce of 2,000 people.

The decision was "difficult and painful" and was made pursuant to "an exhaustive analysis" of the cattle supply and plant capacity situation in the region and throughout North America, Cargill Beef president John Keating said.

It was a decision that "we were compelled to make to reduce the strain" created on the company's beef business by the continuing tightness in the U.S. cattle supply, Keating said.

The beef cow herd experienced its seventh straight year of liquidation in 2012 and will decrease for an eighth straight year this year, and the beef cow herd is now the smallest since 1952, meaning smaller and smaller calf crops and feeder supplies and tighter and tighter finished cattle supplies (Feedstuffs, Nov. 12, 2012).

The liquidation has been due to cow/calf producers, who are dealing with continuing drought that has destroyed hay harvests, pastures and ranges and led to record-high hay prices and land rentals for grass elsewhere, according to Feedstuffs sources. Drought has also driven corn prices to record highs and pushed feedlots to temper their bids for calves and yearlings, sources have said.

This has "adversely contributed" to challenging conditions in Cargill's beef business, Keating said.

Cargill's remaining beef cattle plants in Friona, Texas; Dodge City, Kan., and Ft. Morgan, Colo., will continue to operate and process cattle that were previously destined for Plainview, according to the announcement.

The company's further-processing plants in Fresno, Cal.; Milwaukee, Wis., and Wyalusing, Pa., as well as its beef plant in Schuyler, Neb., and its two beef plants in Canada, will not be affected, the announcement said.

Closing the Plainview plant will allow Cargill to operate its other beef cattle plants in the region more consistently on a five-days-per-week schedule to meet customer demand and maintain its position in the U.S. beef industry, the announcement said.

Over the last 10 years, Cargill has invested approximately $766 million in its U.S. beef plants, the announcement said.

Cargill has been the largest beef processor in the U.S., with a daily capacity to handle 30,000 head, according to the 2013 Feedstuffs Reference Issue & Buyers Guide.

The Plainview plant runs 5,000 head per day.

Cargill emphasized that its plans to idle Plainview include measures for preserving the plant's infrastructure "for potential reopening" if and when the cattle herd rebounds and requires additional capacity to be brought on line.

However, Cargill said it does not expect the beef cattle herd to increase in size significantly "for a number of years."

Keating said the company delayed its decision to idle Plainview "as long as possible" due to its established workforce and to "hopes" that the drought would break, pastures would be restored and cow/calf producers would begin herd rebuilding. Unfortunately, none of this has occurred, he said.

The industry has experienced this in the past, he added, but this liquidation is longer and more severe than most.

Nevertheless, Keating said, "we are optimistic for the long-term prospects" of the U.S. beef industry.

Volume:85 Issue:03

Feedyard Analysis: Fewer cattle placed on feed

Feedyard Analysis: Fewer cattle placed on feed

*Dr. Marcus Hoelsher heads his own consulting firm at 1500 W. Park, Hereford, Texas.

WINTER feeding conditions slowed performance of feedyard cattle, with rain turning into ice and snow, which resulted in higher closeouts.

Compared to the previous month, daily gains were reduced, while feed conversions and costs of gain were higher.

Feedyards reported that steers were placed on feed with a purchased weight of 788 lb., marketed at 1,341 lb. and gained 3.71 lb. daily for the 149-day feeding period. The cost of gain ranged from $116 to $122/cwt. and averaged $118.58/cwt.

Heifers were placed at 725 lb., finished at 1,222 lb. and gained 3.29 lb. daily for 151 days. The cost of gain ranged from $119 to $126/cwt. and averaged $122.55/cwt.

Ration costs for January should range from $380 to $400 per ton on a dry basis with a ration markup. Grain prices have been generally lower than last month. However, roughage and other ingredient prices have been steady to higher.

Cattle feeders have reported losses of $140-160 per head with a $126 fed cattle market. One year ago, they reported losses of $5-10 per head with a $122 market.

Fewer cattle are being placed on feed at the present time. The U.S. Department of Agriculture cattle on feed report had placements at 94% of the previous year.

With increased feed cattle numbers, feedyard managers continued to do a good job in moving cattle from their showlists, most of which are current.

 

Feedyard performance, December 2012

 

-Steers-

-Heifers-

 

Dec. '12

Nov. '12

Dec. '11

Dec. '12

Nov. '12

Dec. '11

Weight in, lb.

788

774

781

725

709

729

Weight out, lb.

1,341

1,339

1,304

1,222

1,224

1,205

Days fed

149

150

152

151

152

151

Daily gain, lb.

3.71

3.77

3.44

3.29

3.39

3.15

Dry conversion, lb.

6.08

5.91

6.16

6.19

6.11

6.38

Death loss, %

1.13

1.16

1.30

1.39

1.56

1.32

Cost of gain, $/cwt.

118.58

112.46

111.38

122.55

116.31

115.54

Data are based on 25 feedlots in a four-state area serviced by several nutritional and veterinarian consulting groups.

 

Volume:85 Issue:03

Drought, temps set records

Drought, temps set records

CARGILL's announcement that it will idle its Plainview, Texas, beef processing plant (story, page 1) marked the latest casualty of a multi-year drought that set a record last year and gripped much of the nation throughout the 2012 growing season.

According to the latest data from the National Oceanic & Atmospheric Administration (NOAA), 2012 was the warmest year on record for the contiguous U.S.

NOAA scientists called 2012 the second-most "extreme" year in recorded history, based on the U.S. Climate Extremes Index, and noted that the average temperature for the year was significantly hotter than the 20th-century average and bested the previous warmest year by a full 1 degrees F.

For 2012, the Climate Extremes Index, which measures extremes in temperature and precipitation, as well as tropical cyclones making landfall, was nearly twice the average value and was second only to 1998. Last year saw nearly a dozen weather-related disasters that each crossed the $1 billion loss threshold, NOAA reported.

Drought, of course, was one of those disasters. At its peak in July, drought encompassed nearly 61% of the nation and fueled wildfires that burned more than 9.2 million acres, the third largest on record. Average precipitation for the year indicated the 15th-driest year on record.

Globally, 2012 was the 10th-warmest year on record, and NOAA said 2012 was the 36th consecutive year with a global temperature above the 20th-century average. Including 2012, all 12 years of the 21st-century rank among the 14 warmest in the 133-year period for which records have been kept. Only 1998 was warmer than 2012 globally.

Besides the U.S., major drought gripped many productive regions of the planet last year, including Australia, eastern Russia, the Ukraine, Kazakhstan and parts of Brazil.

While forecasters had previously speculated that an El Nino/La Nina-Southern Oscillation (ENSO) event might occur, shifting the current weather patterns and perhaps providing some relief to parched regions of the world, the latest models from NOAA's Climate Prediction Center suggest that an ENSO event is not likely to occur at this point.

Equatorial sea surface temperatures are increasingly below average across the eastern Pacific Ocean, and while atmospheric conditions may appear to mimic La Nina, ocean temperatures necessary to spark the well-known meteorological phenomenon remain neutral and are expected to persist as such through spring in the Northern Hemisphere.

Looking at the forecast for temperature and precipitation over the next three months, the message for U.S. producers is largely "good news/bad news." The good news appears to be above-average precipitation for the eastern Corn Belt stretching south into Kentucky and Tennessee, as well as for western Montana and the Idaho panhandle.

The bad news, on the other hand, is that precipitation is setting up to be below average for the southwestern quarter of the country, encompassing cattle feeding regions that already have been devastated by the multi-year drought. Temperatures are expected to be above normal for the lower half of the country and colder than normal for Montana and the Dakotas.

While recent rains have alleviated some of the stresses related to barge shipments on the Mississippi River and eased shipping costs and freight rates somewhat, concerns persist about excessive dryness lingering into the 2013 planting season.

Iowa State University climatologist Elwynn Taylor noted in early January that he expects a fourth consecutive year of below-trend crop yields based on drought conditions.

With more than 40% of the nation still facing severe to exceptional drought, according to the latest U.S. Drought Monitor (Map), it is easy to understand Taylor's pessimistic projection. His call for another year of subpar yields makes even more sense when considering that the western Corn Belt is not forecasted to receive any "extra" precipitation prior to planting and that the region produces nearly half of the U.S. corn crop.

Relative to the forecast for continued ENSO-neutral conditions, no news may, in fact, be good news after all.

Another year of La Nina would mean more abnormally hot temperatures, which would exacerbate further the already dry conditions. An El Nino event, on the other hand, might have produced the moisture necessary to make up the current deficits heading into planting.

 

Volume:85 Issue:03