ISU Extension
IA State Univ.
IA Dept. of Ag
IA DNR

April 2003

In this issue

• Get Started on Country of Origin Labeling

• Risk Management and the Farm Bill 

• First Northwest Iowa Quality Cull Beef Cow Value Added Marketing Program 

• Young Early-Weaned Pigs Potentially Expensive in Wean-To-Finish Phase

Get Started on Country of Origin Labeling
Beth Ellen Doran, Beef Field Specialist

Packing plants are sending letters to livestock producers asking for third party verification documentation proving where animals were born and raised.  This is to meet the guidelines for Country of Origin Labeling (COOL), scheduled for implementation September 30, 2004.  USDA has not yet specified what record system to use.  A list of approved third parties has not been released.  So how will this affect you?

Cow-Calf Producers: COOL requirements may affect calves born this spring.  At a minimum, cowherd owners should develop a record system to document that the calves born on their farms are "products of the U.S.A."  Producers can begin by tagging calves and recording birth dates, tag number and a description of the calf in a calving book.  Tracking your herd inventory is also advised.  This will involve filing receipts of herd animals purchased and sold. 

Another strategy for cow-calf producers may be to use an established record system such as the Iowa Green Tag program or the Iowa Quality Beef electronic identification.  In both cases, the cattle are entered into a formal database.  Keep in mind that you will likely be asked for this documentation when you sell the cattle.

While a list of approved third parties does not yet exist, producers may use programs like Cow Herd Improvement Program Services (CHIPS), your local veterinarian or breed associations to document where calves were born and raised.  For more information about CHIPS, you may view the web site <www.chipsbeef.com>.

Feedlot Producers: Cattle feeders will also need to document that cattle were "raised" in the U.S.  Appropriate documentation can include scale tickets with in-and-out weights and closeout records.

However, feedlot owners will need documen-tation on where the cattle were before the feedlot, place of birth and stocker operation.  Because cattle are often co-mingled, this may require individual animal identification.  Feedlot owners need to think about what documentation they will require from sellers and how that information will be transferred through the marketing channel of auction markets, order buyers and truckers.  Cattle feeders will also want to discuss COOL with their fed cattle buyers to determine what information must be forwarded with the cattle when sold. 

As proposed, COOL will require retailers to develop and maintain an audit trail on the products they sell to verify the label indicating the country of origin.  Members of the supply chain will have to keep sufficient records to support the audit trail.  Animals without adequate records cannot be sold through retail grocery stores and will be sold through food service, processed meats or other exempted outlets.

For more information, contact the Iowa Beef Center at 515-294-BEEF or see the web site at <www.iowabeefcenter.org>.
 

Risk Management and the Farm Bill
by Ron Hook, ISUE Farm Management Specialist

Farm programs administered by the U.S. Department of Agriculture have had many objectives over the years.  Protecting farmers from the risk of falling commodity prices has been one of the most important ones. A number of different mechanisms have been tried, including price supports, loans, supply control incentives, and various types of payments.  The 2002 Farm Bill contains three different types of payments, each with a different relation to commodity prices. Now that the sign up is pretty much wrapped up for the 2002 Farm Bill, we need to take a closer look at exactly how these payments may affect risk management decisions.

Direct Payments
The Direct Payment (DP) has replaced other farm payments received in recent years that were known variously as AMTA, FAIR, Market Loss Assistance, and Oilseed Payments.  DPs apply to all program crops, and are determined by the acres in each crop base and the program yield for that crop.  A fixed rate per bushel is paid, $.28 for corn and $.44 for soybeans.  However, DPs are made on proven yields from the early 1980s and on 85 percent of the crop base acres. Based on current yields, payments are only about two-thirds the stated rate.  For example, 100 acres of corn base with a DP yield of 110 bpa would receive a payment of $26.18 per acre.  If the current yield is 160 bpa that actually amounts to $.164 cents per bushel produced instead of the $.28 DP rate.

The most important feature of DPs is that they are fixed for the next six years once the crop bases and program yields have been established.  What happens to acres planted, yields produced and prices received after that will not change the value of the payments.  So, DPs have essentially no effect on price risk, except that they provide an extra cash infusion in addition to the revenue received from the market.

Counter Cyclical Payments
The most discussed feature of the new commodity programs and probably the least well understood has been the counter cyclical payment (CCP).  These payments were named because the payment rate runs counter to market prices---when prices increase CCPs decrease, when prices decrease CCPs increase.  CCPs are paid when the season average market price is below $2.32 for corn and below $5.36 for soybeans.  This price is a weighted average of what was paid for the grain from September 1 to August 31.  The season average market price for the 2002 crop will be the weighted average of what is paid between September 1, 2002 and August 31, 2003.  It is weighted by the quantity of grain sold in each month and in each state. Yearly average cash prices in northwest Iowa are generally about $.15 per bushel below the national average. 

In October each year the Secretary of Agriculture will announce the CCP authorized for that crop year.  Advances on the authorized CCP will be available in October and February with the balance, if any, paid in September.  Payment rates are set at the difference between the final season average market price and the trigger prices mentioned above.  The maximum payment rates are $.34 per bushel for corn and $.36 per bushel for soybeans for 2002-2003.  However, payments are based on only 85 percent of the base acres for each crop.  Moreover, program yields are only 93.5 percent of recent average yields, or even less if old crop bases were retained.  Thus, for each $.10 that market prices fall below the trigger levels, the actual counter cyclical payment is about $.08 per bushel or less.  For example, a proven yield of 160 bpa with a $.10 CCP would actually provide a payment of $12.75 per acre or $.08 per bushel on 160 bpa production instead of the $.10 CCP rate.

In addition, CCPs are based on historical crop acres and yields, not current production.  For example, if a farm has a 100 percent corn base but is planting 50 percent corn and 50 percent soybeans now, the CCP provides double price risk protection for corn, but none at all for soybeans.  So, while CCPs are tied somewhat to commodity prices, it is a rather strange relationship.  They do not take the place of forward pricing tools or crop revenue insurance when it comes to risk management.

Loan Deficiency Payments
During the low grain prices of recent years corn and soybean producers became very adept at applying for loan deficiency payments (LDPs) or marketing loan gains.  The new farm bill retains the same feature.  Any time that local market prices, as measured by the posted county price in each Farm Service Agency office, fall below the county loan rate for a given commodity, a producer can apply for a loan deficiency payment or marketing loan gain equal to the difference. 

Because loan deficiency payments are paid on bushels actually produced each year, they provide very direct risk protection against low prices.  The average loan rates in Iowa are $1.90 for corn and $4.93 for soybeans, but they vary by county.  The 2002 farm bill raised county loan rates for corn by $.12 per bushel in Iowa, and lowered rates for soybeans by $.26. 

The total revenue received per bushel changes as market prices move higher.  DPs are made regardless of price.  LDPs diminish as the market price rises to the loan rate, and CCPs disappear when the national price exceeds the trigger price level.  The minimum total revenue per bushelproduced is around $2.33 per bushel for corn and $5.50 per bushel for soybeans considerably below the target prices of $2.60 for corn and $5.80 for soybeans. Without direct payments the minimum revenues are $2.14 and $5.21, respectively. 

In summary, LDPs provide a price floor for actual production.  CCPs provide some additional price protection.  Both of these are fixed through 2007, except that the loan rate for corn will drop by $.03 in 2004.  Neither of these features provides any protection against yield risk.  Farmers in the Great Plains and the eastern Corn Belt found this out in 2002.  Many of them suffered large yield losses due to drought, yet, since prices increased, they received only the direct payment.  As a result Congress approved emergency disaster payments for some affected areas.

First Northwest Iowa Quality Cull Beef Cow Value Added Marketing Program
by Dennis DeWitt, ISUE Livestock Field Specialist

On December 2, six beef producers placed 27 cull beef cows on feed at the Iowa Lakes Community College Farm, Emmetsburg.  The cows were fed a 62Mcal/cwt ration consisting of corn, corn silage, hay, corn stover and commercial protein supplement for 94 days.  They averaged 2.73 lb. daily gain and averaged 12.2 lb. DM/lb. gain. 

The cows were transported to American Foods Group, Green Bay, Wisconsin for harvest and carcass data collection.  Eighteen carcasses were premium white fat, 2-non white fat carcasses, 2-boner/breaker and 1-cutter/canner.  Also, there were 3-low choice and 1-select carcass.  Average dressing percent was 55.6, backfat was .51 inches, loineye area was 12.3 square inches and yield grade was 3.2. 

The cows were valued at $35.20 upon delivery to the feedlot and the average selling price was $51.41.  The total cost for feed, transportation, marketing, labor, vet. medical, processing, interest and data collection was $225.  The average value added marketing program net return was $75.18 per head.  For further information contact Dennis DeWitt by email: dewitt@iastate.edu

Young Early-Weaned Pigs Potentially Expensive in Wean-To-Finish Phase
by Dave Stender, ISUE Swine Field Specialist

An interesting paper was presented from abstract 73 at Midwestern Section of the American Society of Animal Science meetings on March 18, 2003 in Des Moines. This paper confirmed the tradeoff between lowering weaning age to get more litters per sow in the breeding/farrowing barn vs. increasing weaning age to improve wean-to-finish growth performance.  More pigs-out-the-door in the farrowing barn is a common criteria for success in the breeding herd, but new data has indicated those extra pigs may be expensive in the wean-to-finish phase. 

Two trials were conducted on a 7,300 sow three-site production unit by Kansas State University.  Pigs were weaned from 12 to 21 days old and grouped by weaning age through the nursery and finisher stages.

A summary for trial one is as follows:

The economics were calculated.  Each extra day in weaning age was worth $.89 for every pig.  Death loss was improved by 0.5% for every extra day and overall weight sold increased by 4 pounds for each extra day in weaning age. Fewer light-weight pigs would also potentially decrease sort loss although that cost saving was not calculated in this trial.  In this study, not all weaned pigs are equal in value. Lighter pigs going through the system can add considerable cost to the whole operation.

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