Eastern Missouri Commission Co.

Here we are in July and I'm writing an article that goes completely against the core of my being. I've been told three times this week that I wear rose colored glasses. I've always tried to be optimistic and find the silver lining to every cloud even while I'm getting struck by lightning.

I always try to believe that everything will work out and be okay. That's what I want to say this month too but in good conscious, I can't. I'm taking off the glasses this month to talk about and make the readers aware of the reality of our situation.

My earliest childhood memories are from the back of the Columbia Livestock Auction (CLA). That back office vision is never complete without the smallish figure of an elderly but spry man with bib overalls armed with a small hickory sorting stick. To the hundreds of college kids that earned their biscuit and beer money in CLA's 55years, Billy Wade was an iconic fountain of wisdom. Billy was one of three Wade brothers that helped make CLA a hub of entertainment, information, and commerce. The point to this reminiscing is something I heard the depression era Billy Wade say more than once, "It hasn't ever got so bad that it can't get worse".

The reality of our situation is dire. The cattle feeders are the engine that drives our industry. The capitalist system runs on profit of which there has been none to speak of for two years. Lack of profitability is one thing, loss of equity is a critical sign of the sickness of the cattle feeding sector.

Fifty years ago the industry revolutionized itself shifting much of the cattle feeding to the new western feedlots from the cornbelt. Technological advances in irrigation, cattle transportation (pots), feeding technology, meat refrigeration, boxed beef, and all economies of scale converged to build a massive, multi-billion industrialized beef production system. The heart of this system has always been the feeders - some individuals, some families, some corporations, but together a critical part of the marketing chain that puts our mid-western calves on plates around the world. I hope I've impressed upon you the immensity of the industry because you have to appreciate that to appreciate the problem.

As we all know the entire American economy is faltering, each failing sector dragging down all others. The root of the problem is a disappearance of wealth and equity of the populace. I don't understand where the money went - it has just gone away.

Since the well publicized financial meltdown, I have been exposed to a new term - "systemic risk". When systems become so integrated that like a pebble dropped in a pond the ripple travels and affects every part that touches every other part.

To be blunt, I believe the equity drain out of our industry has been so severe that the entire industry is crumbling. There is no more equity to be lost or the decision has been made by hundreds of feeders just to quit. Case in point – there is a large family in Iowa that has bought and fed cattle for generations – many of them YOUR cattle – to a tune of over 100 loads a year. Last fall, rather than let the equity accumulated for generations evaporate any more, they all quit. Lined up all the cattle feeding equipment and quit. Two of the brothers took the money and bought two lake houses - the money they haven't lost this year has cleared one of the houses. If you owned a lake house free and clear, would you ever sell it and go back to the farm to feed cattle all winter? I think they quit forever. A friend from Nebraska tells me that one of the largest and oldest cattle feeding families in Nebraska are in the process of closing all there feedlots now. A friend from Kansas tells me of a Garden City, Kansas 80,000 head finishing feedlot now a heifer development lot- currently with 300 head to fill the pens.

The massive liquidation of the nations cow heard has kept calf and yearling numbers short enough that the prices, while trending lower has remained stable and as any cattle feeder can tell you – and too high relative to the cost of feeding and the selling price of feds.

So what does this whole long article mean to you? I see an entire industry exposed to systemic risk. I'm not saying this is going to happen - I'm only saying it COULD happen. For the first time in history due to credit crunch and equity drain, the United States may have more calves to sell in October and November than there is dollars to buy them. Calves 25% off? Now Billy Wade's words come back to me. Is it just a story or is it a warning...30% or 40% or half price calf sale anyone?

Remember always every really big change while devastating the status quo and those that cling to it, will create equally magnificent opportunities for those who seek opportunity and have prepared to profit from them. Unfortunately, the beneficiaries seem only to be a fraction of everyone disrupted.

So what can we do? Get calves ready to sell by say the 2nd Friday in Sept. or plan on keeping them through next spring. Avoid October and November marketing of calves. I believe that in the current economic climate, the fall calf run COULD overwhelm buyers. This often happens to a small degree nearly every fall, for a couple of weeks and sometimes more. I can envision several factors causing it to be far worse this year.

Prepare your backgrounding pens to take cattle in October, November and December. We had one customer buying light weight second and third cut calves last October thru December. He sold them as yearlings in June advancing the selling price over the purchase price by around thirty dollars per hundred weight.

The best way to avoid collapse and rebuild the feedlot sector equity is to return to profitability. Although it worked for the mega banks, I don’t envision Federal bailout money to replenish equity a likely option. The return to profitability can happen in three ways. First, feeder cattle just have to be placed in feedyard at lower break evens. In other words we have to sell your cattle cheaper. In my mind this is not a good option. Second, we have to feed them cheaper. In other words your corn has to be bought cheaper too. After the acreage report this will accelerate the price decline. Finally, the best option is the hardest to complete. All would be solved if we could just sell the fat cattle higher. As long as unemployment continues to climb monthly the market can't bounce. I think within a year after employment begins to improve, we will be due for a large move in the market. That is when we even up and pay the bankers.