2007 NCBA Convention Report

Friday, February 2

Today was Committee Day, where NCBA members meet all day to work out policy.

There was also a General Session where awards were handed out and the keynote speaker was our Secretary of Agriculture Mike Johanns.  The highlight of the opening comments came from Jay O'Brian, head of the Cattlemans Beef Board; he challenged us that we needed to focus on the sex appeal of beef, to encourage the end result of more children and grandchildren who will grow up to be beef consumers.

Awards:  The Trailblazer award recognizes a producer that has been an innovative producer, a promoter of our product, and a voice for our industry.  This years Trailblazers were Bob and Nancy Montross, who are Land O'Lakes customers from DeSmet, South Dakota.

The Beef Backer Awards recognize restaurants that have promoted beef on their menu, focusing on quality, originality and passion.  The Independent Winner was the Buckhorn Steak and Roadhouse from Winters California.  The Chain Winner was O'Charleys, based in Nashville.  And the Innovator of the Year was Mortimers in Boise, Idaho.  It was also announced that the award would be expanded to retail stores next year.

The National Stocker Award was given to the Hughes Cattle Company of Bartlettsville, Oklahoma.

Secretary of Agriculture, Mike Johanns.  The former governor of Nebraska received a warm welcome from the Assembly.  He started with a review of the upcoming Farm Bill, saying that it would give more marketing freedom while maintaining a safety net for producers.

Renewable fuels will be front and center in the Farm Bill, with a goal of 35 billion gallons a year to reduce gasoline use by 20%.  Johanns also acknowledged that he and the President were aware  of the pressure high priced corn put on livestock producers, which is why there was a commitment for dollar support for research on cellulosic ethanol.

The Farm Bill proposes to consolidate and simplify the Conservation programs, and credits for reducing green house gasses and improving water quality are being proposed.

1031 land exchanges will come under scrutiny, with a proposal that land acquired in such an exchange will not be eligible for for government commodity support programs.

Also be looking for additional weather disaster relief in the new Farm Bill.

The Secretary next addressed the issue of trade, particularly to the Pacific Rim.  The first goal is to get Japan to adhere to international trade rules and to stop moving the goal.  BSE testing of high risk animals has resulted 3 positives in over 800,000 samples - this should allow us to get a low risk designation from the OIE and help us get meat from cattle under 30 months of age into Japan.  Based on that same science, the Secretary supports opening the Canadian border to cattle over 30 months of age.  Johanns also stated we have not given up on Korea, and expects that progress will be made as we will pressure them when other trade issues with Korea are addressed.

The Secretary wrapped up with encouragement that producer participate in the voluntary National Animal ID program for disease control, and a pledge that the Secretary and the President will be working in a bi-partisan effort on the farm bill.

Benchmark Forum.  I next attended this annual forum on closeout analysis.  Their numbers were supportive of the numbers we heard from Cattle-Fax yesterday.  Steers had an additional 6 days on feed, 16# more market weight and 6# more hot carcass weight in 2006.  A disturbing trend was on carcass quality; there is a 5 year down trend the % Choice cattle in pens, while there is also a 3 year down trend in Yield Grade 2 carcasses and a 6 year up-trend in Yield Grade 4 carcasses.  Purchase price on feeders was an all time high, while out price was down $1-2, resulting in profits at a breakeven level.  Ration DM cost went from $158/ton in January to $185/ton in December, with commentary that current costs exceed $200/ton.

Live Cattle Marketing.  There are so many committee meetings today that I wish I had a clone or two.  Because of other commitments and meetings I missed some committee meetings that would be very interesting, particularly the Ag Policy committee discussion on ethanol policy, and the International Trade committee discussion on Canadian cattle.

A new website from Kansas State University was highlighted.  BeefBasis.com gives interactive basis information on stocker and feeder cattle.  In the future they hope to add a fed cattle option as well.

Mandatory Price Reporting was reviewed by USDA staff.  It expired in 2005, but the President has signed it back into law until 2010.  Because of the gap in time, all of the regulations need to be reviewed and opened for comment, so it will likely be late this year or early next year before it goes into effect again.

The CME index for Feeder Cattle will see some changes; calves over 650# will now be included in the index, and they will not take prices on feeders priced delivered if the reporter converts that price into an FOB price.  Reporters need to be regular reporters, and new reporters need to report for at least 30 days before their reports are factored into the index.  More brokers and barns were encouraged to report feeder sales to the USDA, as the vast majority of the reports are coming from Texas.

A working group is being put together by this committee to look at delivery specs on Futures Contracts.  These haven't changed in 20-30 years, and in light of the current basis delivery is becoming a serious option for more producers.

QSAs (Quality System Assessment) and PVPs (Process Verification Program) were reviewed.   Prior to 2003, these were voluntary programs for alliances, but now these processes are mandatory to document  the qualifications of meat for export.  It was noted how large export  potential is, in that 96% of the world population is outside of the United States, and that we are still the number one beef producer in the world.  For all export cattle, source and age verification is mandatory and for cattle exported to Europe, verification that they are hormone free is required.    Producers can do their own QSA/PVP, or they can be a supplier to a buyer with a QSA/PFP; either way a third party verification will be required annually.

A Marketing Issues Working Group is being formed to study the impact of a proposed packer ownership ban in the new Farm Bill.  A Montana rancher testified that they have spent a lot of time and investment developing cattle that met specifications for a packers all natural program, and as written this alliance would be illegal as it is considered packer control.

An NCBA staff member gave a Washington update.  With a new majority in Congress, we were reminded that we were neither Republicans or Democrats but Cattlemen.   Positives in this new Congress is that there are at least 50 Blue Dog Democrats (who are fiscal conservatives) and that with Democrats controlling funding farm suport programs are unlikely to be reduced.  The proposed Packer Ban will be debated for the Farm Bill, and there are supporters in key positions on the House and Senate Ag committees.  A federal study (asked for by NCBA and other commodity groups) on the livestock marketing complex was due to be released by the end of February.

Thursday, February 1

Cattle-Fax.  Today we started off with the annual CattleFax Outlook.  The weather forecast for 2007 is warmer and drier then normal for the corn belt.  This may or may not effect actual crop yields very much, but it will most certainly contribute to more volatility in the corn market.  Be looking for ways to protect your feed costs through contracts or hedge positions.

U.S. Beef production was up 5.5% in 2006.  Even with the added cow slaughter in dry areas, there was expansion of the cow herd.  Also, heifer placements in the feedlot was 33% vs. 35-36% in an normal year.

Lower carcass weights are expected in 2007 because of higher feed costs.  This along with higher use of co-products in the diet and good demand should lead to a wider choice-select spread.  Consumer demand for total beef cuts was down 1%, but demand for Choice and CAB products was up 1.3%.  Demand for pork was -3% and for chicken breast -13%.  While we may enjoy seeing demand go down for the competition, what it will also mean is that the competition will get cheaper to move product.

Exports are on the road to recovery.  They are expected to be up 50% in 2007 vs. 2006, but we are still 10 million metric tons behind 2003.  In order to gain more export volume back, we need to move Japan from a 20 month to a 30 month age limit on beef.

Corn demand is strong and is expected to get stronger.  We have the second lowest U.S. stocks to use ratio in the last 40 years, and the 2nd lowest world stocks to use ration in 30 years.

Major feedlots will be placing heavier cattle so that they can feed less corn per head.  This will be positive for the stocker industry but may be negative on calf prices.  Heavier cattle with faster turnover can also lead to an annual increase in fed cattle marketed once the feeder pipeline fills up.

Average forecast fed cattle price is $85 for 2007, which is a dollar lower then 2006.  Yearling steer prices are expected to average in the mid 90's and steer calf prices around $110.

Following Cattle-Fax were a series of Industry Forums.  I attended two of them.

Forum on Natural and Organic Beef.  I was curious to hear what they had for outlook and plans.  Anyone that knows me understands that I am somewhat of a Natural/Organic skeptic.  I am concerned by consumers making buying decisions based on emotion and bad science, and I am concerned that premiums for Natural/Organic cattle are not enough to cover the higher production costs.  Never the less, this is a growing segment of our market and we ignore it at our own peril.

Currently, Natural and Organic beef accounts for less then 2% of the beef sold in the U.S.  It is not expected to become the mainstream, but it is expected to grow from 2.3 billion pounds to 5.8 billion pounds over the next couple of years, that's a growth of 135%.

Cargill Meat Solutions presented what they were doing in this market, and they had many different labels for natural beef.  An executive with Chipotle Mexican Grills explained how their sales volume increased with all natural pork, even though entree price went up about 20%.  They are now moving to all natural beef, chicken, and vegetables where possible.  John Stika of Certified Angus Beef explained how they have entered the market, going from .5 million pounds in 2004 to an expected 9 million pounds in 2007.  CAB is marketing most of their all natural beef through mainstream supermarkets.  Mel Coleman Jr. of Coleman Natural explained how their family were true believers in the all natural beef and didn't get into the business simply because there was a market opportunity.

There was some debate in the group on whether all natural should denote beef from cattle fed no hormones or no antibiotics, from a newer definition of all natural meaning limited processing of the meat so there is less additives.

Forum on Bio-Fuels Impact on the Cattle Industry.  What I see as a boon to the upper midwest farmer-feeder is also a major challenge to the large feedlots that buy their corn and to the cow/calf operator that has seen his calf values fall 35% in a few months.

Bill Holbrook is an analyst with the Pro Exporter Network.  He had their analysis on growth of ethanol, which was slightly less bullish then many other numbers I have heard.  They feel that due to higher corn price and lower fuel prices, expansion of corn based ethanol will slow down, but still probably double in the next 3 years.  There are several plants that have started fund drives and may have even started moving dirt, but have now put things on hold until corn comes down in price.

It was interesting to learn that the ethanol plants do not get the 51¢/gallon blenders credit.  This goes to the plants that actually blend the ethanol with the gasoline.  It does increase what the blenders can pay for ethanol, but it is not a direct subsidy to the plants themselves. 

Another thing that will help plants already running is that profits have been so good that many of the 3-4 year old plants are completely paid for.  This will definitely help what they can pay for corn. 

By the winter of 2007-2008, Iowa is expected to have 2,000,000 metric tons of DDGs to export out of state; in other words that much more then what livestock in Iowa can consume.  By 2015-16, national production of DDGs could exceed domestic livestock needs.  One things the processors will do is try to find other ways to get value out of the distillers grains - they will not give it away to the feedlots if they can find another value for it.

Another challenge is transportation.  We were already short this year on rail cars to move ethanol and DDGs; over the next 10 years we will need to increase rail capacity 68% and trucking capacity 74% for the ethanol industry.

Greg Dowd, who is the Chief Economist for NCBA also addressed the group.   He explained that as of today, the NCBA has absolutely no policy on the books pertaining to renewable fuels (expect that to change this week).

They have looked at the CRP ground, and feel that because of the terms of current contracts and erodibilty index of some ground, CRP will not see a significant move to corn ground. 

Greg also pointed out that when the Administration is talking renewable fuels, their main emphasis is cellulosic ethanol.  Looking at government numbers they expect corn based ethanol to level off by 2010, and that cellulosic ethanol production will be 2 times that of corn ethanol production by 2020.

Some support to research on the proper and greater use of co-products in cattle rations has come from Checkoff funds.

 Wednesday, Dec 31

Today, the National Cattleman’s Beef Association kicked off its 2007 Cattle Industry Annual Convention in Nashville, TN.  This is one of the highlight of the year, an opportunity to see old friends and learn new ideas.  If you’ve never attended an NCBA Convention, I heartily encourage you to come some year, it is well worth the trip!

The day started with Cattlemans College, an excellent annual education program sponsored by the NCBA and Pfizer Animal Health.   I have attended for many years and always learn new ideas.  This year, attendees could choose to attend three of the following sessions:

Red Steagall entertained those in the Cattlemans College during the lunch break.

After the Cattlemans College, was the Opening General Session.   NCBA staffers and officers updated us on what the organization is doing on trade issues, new product development, marketing, property rights, and other industry issues.  The Long Range Plan elements of creating value, creating growth, creating sustainability, and creating opportunity.   A new weekly TV show on RFD/TV, Cattlemen to Cattlemen was also introduced to the meeting.

The key note speaker for the General Session was author and TV commentator Kevin Freiberg.  He shared with the assembly how being creative and innovative can result in new sales and profitability, even at the producer level.  He talked about the results from companies like Southwest Airlines, and Planet Honda (a dealership in New Jersey) have gone out of the box and seen tremendous results.  My favorite quote in his presentation was from another author, Eric Hoffer: “In a time of drastic change, it is the learners who inherit the future.  The learned find themselves equipped to live in a world that no longer exists.”

The day ended with the Welcome Reception and the opening of the Trade Show.