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Cattle producers looking for a rebound
By MIKE FERGUSON
Of the Baker City Herald
Plummeting cattle prices in this country the past few weeks are a painful reminder of just how global agricultural markets have become and how seemingly unrelated events and even rumors can mean far lower profits for producers unlucky enough to bring their cattle to market at precisely the wrong time.
Ron Rowan, director of risk management for Beef Northwest Feedlots, LLC, said that the recent plunge in cattle prices can be traced back to events that may sound unrelated, even innocuous: a Russian government decision in early March to temporarily ban the import of U.S. poultry and what turned out to be a false report of foot-and-mouth disease in Kansas.
But stories like those can send markets into a free fall, a spiral that's occurring both at local cattle auctions in La Grande and Vale and big-time cattle futures markets such as the Chicago Mercantile Exchange.
The Russian ban on American poultry March 10 began the downward spiral in beef prices, Rowan said, because it quickly backed up the supply of American poultry meant for export.
That kind of back-up pushes down the price of other meats, including pork and beef, he said. Hog prices went down about $20 per hundredweight in the weeks following the ban, he said, and cattle prices have fallen from the mid-$70s to the low $60 range per hundredweight.
In implementing its ban, the Russian government cited salmonella poisoning and the use of antibiotics among American chicken producers. The ban had an immediate impact on American producers and exporters. Half of all U.S. export poultry is shipped to Russia, according to the U.S. Department of Agriculture.
A false alarm about foot-and-mouth disease in Kansas only accelerated the price decline, Rowan said.
"Foot-and-mouth is just about the most contagious disease there is," he said. "An alarm went off, and the (cattle) market started down again. It shows just how fragile things are."
In one day, he said, prices were down the equivalent of $18 per head. Baker County Planning Director Mark Bennett, who also raises cattle in Unity and Hereford, said he sold what few head of cattle he had remaining at between $30 and $40 less per head than what he was expecting. Since the normal profit margin on each head of cattle is about $65, that's a big bite out of a producer's bottom line, he said.
One saving grace, Bennett said, was that his cattle was finished early at the feedlot, which reduced his cost.
The "cattle cycle"
For decades, cattle prices have ebbed and flowed according to what is called the cattle cycle. The cycle typically lasts between eight and 12 years; this is year 10 of the current cycle, and the last several years have been marked by unusually high prices, according to Baker County Extension Agent Jay Carr.
The cycle is determined by the combined effects of cattle prices and the time needed to breed, birth, and raise cattle to market weight. Economists with the USDA believe that two more years of declining prices are likely as the current cycle is completed.
The problem with completing the cycle so that prices might rebound is that the drought of 2000 interrupted the cycle. Producers had to put off the retention of heifers until the 2001 calf crop, and those heifers won't produce calves of their own until next year.
Rowan said that the effects of the low prices have not yet hit cow-calf operators. The people who are hit first, he said, are feedlot operators, who must figure out ways to finish cattle more quickly, since producers have less money to spend on finishing.
Low cattle prices affect more than just producers, of course. Cattlemen and women who take a hit when they go to market may put off equipment purchases until they can more readily afford them.
Cattle is by far the largest sector of Baker County's agricultural economy. Last year, cattle and calves accounted for about $31.5 million of the $49.6 million paid to the county's farmers and ranchers.
Rowan believes extra cattle have been brought to market this spring because some producers are afraid prices will be in the $50 range per hundredweight this summer.
Still, he said, most of the market volatility is probably in the past.
"People think all the bad news is over," he said Friday. "That's important for the psychology of the market."
Area consumers, of course, can play a role in helping cattle prices to rebound.
"Do your bit," he advised area residents. "Have a hamburger or a steak."