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CME: Hay Prices Affect Corn Rates

11 July 2008

US - CME's Daily Livestock Report for 10th July, 2008.

Two days ago in this report, we pointed out the ever rising pace of beef cow slaughter and the implications that this has for beef cow inventories going forward.

E-Livestock Volume 10-Jul 9-Jul 3-Jul
LE (E-Live Cattle): 21,058 15,500 11,154
GF (E-Feeder Cattle):/td> 2,255** 1,543 217
HE (E-Lean Hogs): 21,002 17,182 9,570
** New Globex Feeder Cattle Record

Beef cow slaughter has increased in the past two months and this has been largely due to more US domestic cows going to slaughter. Since the beginning of May, US cow-calf producers have sent almost 80,000 more beef cows to market than a year ago and about 2/3 of these animals were from US domestic herds. In addition to the continuing liquidation of the US beef cow herd, we have also seen an increase in dairy cows coming to market. Despite strong milk and cheese prices, rising feed and energy costs continue to pinch dairy producer budgets, leading to a further reduction of the dairy herd and higher dairy prices down the road. Since the beginning of May, US domestic dairy cow slaughter has been 22,000 head or 5.9% higher than a year ago. In total, since early May US cow-calf producers and dairymen have marketed over 100,000 head more than a year ago, an 11% increase, with the majority of those additional animals representing a contraction of domestic cattle supplies.

Hay prices eased a bit in June, partly because pasture conditions have been fairly close to the long term average. But, prices remain as much as 17% higher than a year ago and 51% higher than the five year average. And hay prices are not the same across the country. The latest NASS hay price update shows a price range for hay (other than alfalfa) between $54 (North Dakota) and $195 /ton (Washington). Depending on what happens with corn prices this fall and winter, hay prices could escalate further. It is important to keep in mind that most feed items benchmark off corn prices. If corn prices escalate past harvest, they will pressure hay prices even higher. USDA recently announced an emergency program that would allow cattle grazing or hay harvesting on some 24 million acres currently enrolled in the Conservation Reserve Program (CRP). We thought the biggest contribution of the program was to allow producers to build hay stocks in preparation of winter. Without more hay the industry could see a significant liquidation of the beef cow herd as producers sold animals for which they could not afford the feed to carry them over the winter. That USDA decision, however, is currently tied up in litigation after an injunction on Tuesday by a Washington State judge halted the implementation of the program. It is a disheartening decision for cow-calf producers struggling to hold to their herds together. It is also a sign of things to come as the need for bringing more acres into production clashes with the goals and aspirations of a well financed and legally savvy environmental movement.





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