Sky-high beef prices may ignite ag turnaround

ORIGINALLY WRITTEN JERRY ENGLER
The current price for U.S. cattle, highest in history, could bring prosperity to rural areas like Marion County-or, all high expectations could be dashed in one moment by the discovery of one animal with mad-cow disease.

Merle Schlehuber, who runs a cattle feeding operation between Hillsboro and Lehigh, said the sobering warning about mad-cow disease is illustrated in neighboring Canada.

Discovery of the disease, known technically as bovine spongiform encephalopathy or BSE, in one Canadian animal set off disaster there.

But also caused the U.S. government to seal off the U.S. border to Canadian exports, and it created the current surge in the U.S. market.

Schlehuber said top fat cattle are selling now at $1.08 a pound, with a range of 99 cents to $1.08. The 700-pound feeder cattle, steers and heifers combined, are selling from 95 cents to as high as $1.15.

“Before the Canadian thing, fats in August hit a spike low of 74 cents, so we’ve seen about a $30 advancement for both steers and heifers,” Schlehuber said.

Schlehuber’s own operation, “we are growers and feeders.”

“We buy lightweight 400-pound cattle, grow them to feeders, sell them as feeders, or go on to the feedyard with them,” he said.

Scott Miesse, with his father J.B. Miesse, order buys cattle for others as well as for the family operation of grazing cattle, and then sends them on to feedlots. They are based north of Marion. He and J.B. travel to auctions across Arkansas, Missouri and Oklahoma to buy cattle.

Miesse said they are seeing high quality 500-pound steer calves sell from $1.07 to $1.12 a pound. He sees producers taking profits, but not really fundamentally changing anything in their buying and selling habits.

“There’s always some rush to sell when times are good,” Miesse said. But people are buying replacements, and he sees the full effect going down to the cow-calf producers who provide the new cattle.

He agreed with Schlehuber’s opinion of the market, and finds a general euphoria for business among all cattlemen they contact.

“They’re excited,” he said.

But the decisions to be made now by producers are tough-make-or-break decisions without knowing the future. If producers guess wrong about the future, disaster could result. With correct projections, the resulting prosperity could even reverse the decline of small-town America.

“The markets now are the best of times, but yet the most risky of times-all on one sheet of paper,” Schlehuber said. “Yes, fundamentally it has caused the highest-priced cattle in history, but there also could be disaster.

“Mad cow disease is the big issue,” he added. “If the U.S. could stay clean of it, we would be the provider of the safest beef products in the world.

“But we could wake up to complete disaster just overnight. It’s good if you have cattle for sale now. But what about buying replacements? It only took finding BSE in one cow in Canada. They’ve killed 80,000 cattle there now without another case.”

In Canada, Schlehuber said, the discovery of BSE devastated cattle producers and trickled down to where it is injuring many other segments of the economy, including trucking, feed producers, pharmaceuticals, retailers and bankers with large investments in the business.

Canadian fat cattle plummeted from 80 cents to 22 cents a pound nearly overnight, he said. The Canadian cow market now at “15 to 20 cents a pound, and lots of them just destroyed.”

“They’re trying to consume the cattle in their own market,” Schlehuber said. “Some are feeding cattle just because there’s no other choice. There’s not only the loss in their cattle, but what do they do about the investment in facilities?”

As if that’s not enough concern, Schlehuber said,”There’s also the ongoing threat of another terrorist attack. When 9/11 happened, it devastated our beef market for a long time. An attack on a population center or a bio-terrorism attack on livestock could do it again.

“The higher-priced cuts of beef are consumed at hotels and restaurants when people are traveling. They are more conservative at home. If travel to hotels and restaurants comes to a halt, consumption of those cuts of beef can come to a halt, too.

“Also, we have an economy that’s on a very tight rope right now. As the jobless rate increases, it makes it more difficult for a sufficient number of people to have the ability to buy beef.

“It seems we always have to be looking over our shoulder even in the best of times,” he added. “You always have to have it in the back of your mind that we could have natural disasters, like a drought and forced liquidation of cattle.

“The market now is a windfall. However, it’s been a very, very tough time for the markets over the last five or six years. This is a time to take profits, but it’s also a time to help heal some of the devastation that has already happened.

“We survive by averages,” Schlehuber said. “Many people wouldn’t be able to stand the strain of this. It takes a kind of virtue. You can be rags to riches, and back to rags again.

“These elevated cattle prices aren’t extraordinary compared to the price increases we’ve seen for other things-fuel, taxes, health insurance….

“Beef is just now reaching the level where we stay correlated with everything else in the economy. We’ve been producing for 20 years below parity, struggling to produce above break-even.

“The rest of the economy left us in the dust, and part of the boom in the stock market and the cities was at our expense-cheap food, energy, the basics, helped them move forward.

“Beef may one of the leaders to bring agriculture out of the extreme depression of the 20 years. If this continues, main streets will benefit, smaller communities may economically prosper like the major metropolitan areas have done in the last 20 years.”

Miesse added that although he agreed with everything Schlehuber had to say, and that finding a mad cow in the U.S. would be devastating, in general he finds less risk in the cattle market than in the past.

“Cattle numbers are down-feed is cheap,” he said. “They’re selling a lot of cattle out of feedlots light. When they do this, more meat is off the possible end product.

“You end up with less meat out there in the coolers. The supply is down. This helps the market.

“There is a lot of risk in the chance of mad cow happening, but the government has been taking a lot of precautions to keep it from happening,” Miesse added. “The beef people are really keeping an eye on what they feed. That kind of processed feed, mostly bone meal, isn’t being fed.

“There would be a higher risk of it being fed in the dairy industry. What it would be is a possible mistake of a feed mill, where somehow bone meal intended for feed for another animal, like chickens, somehow became a residue in cattle feed. I don’t believe anybody would introduce it on purpose. It would be a processing mistake.

“I have an opinion that if and when they do open the Canadian border for live cattle to come across, it will hurt the market a little bit. But it won’t matter as much, and it won’t be anything devastating like it would be if they found mad cow here.

“Our numbers are down and our pounds are down. Everything seems to be going our way once.”

Miesse said he tries not to take such optimistic opinions lightly because sometimes customers rely on the opinions of his father and him.

“We try to be conscientious,” he said. “We try to buy a customer the best calves possible at the cheapest prices we can get. We need him to have confidence in what we do. If our advice and work do the job for him, and he does well with it, he’ll be back to work with us next year.”

Schlehuber identified other factors helping to drive the better market.

“The Pacific-rim countries and China are improving their economies,” he said. “There are 4 billion people there who are coming into a new standard of living. Beef is going to be a part of their diet, and they are beginning to be able to afford it.

“They could each eat a pound a week, and we could see dramatic changes here because of the huge number of people.

“But that’s only if we stay the safest market in the world. One case of BSE in the U.S., and we could all be big trouble. When our own people complain about the price of beef, they should stop to think about what risk it is being produced at.”

Schlehuber said BSE has already caused widespread damage to cattlemen and markets in the country where it began, Great Britain, and then in Germany and much of Europe. It started from feeding animal by-products to cattle.

This month, another case of BSE in Japan brought the total there to 80, Schlehuber said.

“It helped create a euphoric mood in the cattle industry here,” he said.

Schlehuber said the last Japanese case was in an animal less than 3 years old-which blew a scientific theory that cattle less than 36 months couldn’t get the disease.

Schlehuber is continually updated through his membership in the National Cattleman’s Beef Association, which works to keep its members updated on trade.

He said the NCBA is working with the U.S. and Canadian governments to make sure that if the Canadian border is reopened to future trade, it is fair to producers on both sides. In the past, American producers have suffered because Canadians were allowed unfair advantages, he said.

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