 Well, good evening everybody here and out in the state. It's a pleasure to be here Obviously, these are exciting times in the cattle business and all of agriculture for that matter We in the cattle industry have record cattle prices. We have record corn prices We also have record uncertainty and we have record volatility so with all of that of course there's a lot to say and the bottom line that we're going to talk about tonight is with the high prices of everything can we background cattle and And I think the answer that will kind of save that answer to the end But I think the the answer is very positive there. So a couple housekeeping details You see my website there if I can get the arrow to go here I Do have a cattle situation and I'll look on my website that I update every Monday morning I just pulled a few slides out of this one to show you this evening I have probably 40 slides on my cattle out looking the web and I have maybe 20 or 15 here And so again we update them every Monday morning And if you want to see these same charts a week a month or a year from now help yourself to that So Again hi to all of you if you can see this I'm kind of standing in the way for the the people here so I'll get out of the way but One of the things we're going to talk about a lot tonight and several slides in that rate the next slides talk about weather But anyway, this slide was taken in Western North Dakota in August and of course the unusual thing about this slide is I like The high is why I took it but you see green and usually obviously it is not green out there in the grass Usually isn't that tall either so that's part of the weather that Then we're going to talk about in fact kind of the opposite way And normally you see there at the top I talk a lot of About a number of different price and production patterns tonight However, we're just going to concentrate on seasonal price and production Simply because we're only talking about backgrounding you see the cycle or I'm not even going to talk about the cattle cycle If I was giving a tiger cattle outlook or more a cow calf or a longer term like you see number three there We talked about the cycle a long term Then we have all these unexpected influences and of course with these record prices Everyone is asking when is another one of these things going to come along to cause a disaster and prices to go down And I obviously can't answer that and the last decade was really a tough one on us because we see all of those things and In the middle of the screen there I don't know if I can get my arrow to come up so everybody can see it But now we have drought in the southern part of the US. I'm going to talk about that that is going to cause a lot of interest in backgrounding and Probably will make backgrounding up here a very good alternatives, but again Many many things can affect prices and I'm only going to talk about the seasonal patterns as you see there okay Most important driver of feeder cattle prices and our backgrounding potential is going to come from two places. That is corn prices and Weather like I said, here's a picture of weather in Texas compared to our previous Green slide there in western, North Dakota, and you see they are in the most devastating Drought that they've had on record in places down there. So actually recent developments been both corn prices and weather Have positively impact the backgrounding potential even over a month ago if I'd been giving this talk a month ago I think from a backgrounding standpoint It would have been a lot greater than it is now But also keep in mind that both of these are volatile and when I get into the next few Slides here and show you some corn prices and some weather and so on that you're going to see that So just because things have changed to where they are now from last month doesn't mean that they're they're not going to change again So please keep that in mind Here's a u.s. Drought monitor. It's as of Tuesday of the week, but it comes out every Thursday morning So tomorrow they're going to reassess, but we won't get the new map until Thursday And the darker the color on this screen the more severe the drought You see over on the key on the left-hand side there that very darkest is exceptional drought and all of Texas is in Exceptional or either D3 or D4 a lot of D4 up into Oklahoma and so on so a very very dry down there And this is important for a lot of aspects particularly from a backgrounding standpoint Because this is the time of the year when usually a lot of cabs go up winter wheat particularly down in Oklahoma and Kansas and This year because of the drought conditions the wheat is not up And we will we won't have winter wheat for calves And so they won't be in the market Oklahoma alone has about 2 million calves Then they import another million calves some as far away from here to put on winter wheat My counterpart down there says they will not import a calf for winter wheat grazing And in fact they are getting rid of calves and I've already moved into the feed like Again Things can change here and you see even drought for the first time this year or the just the abnormally dried creeped into southeastern North Dakota There and but looked down into southern Minnesota, Iowa and so on so that was a concern for us Is this drought going to expand and get bigger and particularly for next year and how will that affect the entire cattle business? But again things can change in a hurry and just yesterday and over the weekend we had rain all the way Just go down from about Jamestown or go down from central North Dakota start up and Canadian border And my cursor just doesn't work very well But go all down to the tip of Texas again the baseball game down in Arlington right by Dallas yesterday was postponed because rain They hadn't had rain for a year and then it rained out the game And so down through this central part of the US there was significant rain But I just talked to my counterpart down there that really isn't enough to solve their drought problems It might get some winter wheat going and so on but he says still there will not be any Winter wheat grazing of calves if they do get in or any winter wheat which looks less less possible Later you get the less you can put cattle in there that it would go to keep some more cows around and to put a few cows On there so again this weather can change as it has and and and we've already had more rain Yesterday and today in Fargo than we had all of September. So again it rained a little bit here This next slide on the top is more what I talk about when I'm talking about the cycle in the long term but most of you were aware of this that we are decreasing the cow herd and On July 1st. We had four and a half percent less heifer calves in the US So that means our cow herd will downsize again next year and again Looking at the northern plains were in a different scenario. We're expanding herds up here in effect beef replacement heifers are up 12% in North Dakota, but in Texas, Oklahoma and so on it's so dry and They have a lot more cattle than we do Texas has Five million cows, Oklahoma has another two million cows to compare to North Dakota's less than a million costs They're gonna trump any herd rebuilding that takes place in the US But the more important one for us tonight when we're talking about get backgrounding is from a feeder cattle supply standpoint These are the cattle outside of feedlots being fed to slaughter weight that were available on July 1st We're down two and a half percent So that means we have fewer to go into feedlots or to do with whatever make replacement heifers out of them or so on and So from a supply side, we're going to be very very tight and that is supportive for all feeder cattle prices And however, I know you many of you are looking at these cattle on feed reports And our cattle and feed reports continue to show more cattle on feed and more placements Yet we have in the previous slide fewer cattle to put on feed So what's going on here and how does that fit into the backgrounding scenario and so again maybe too many charts on here But the top chart shows that yes our feedlot net feedlot placements have for the last Several months June July and August Well, June and July were above last year and above the average The August cattle placements were 99% of a year ago So just down slightly from a year ago But even more than the average and you go down to the heavier weights on the bottom left-hand side of the screen there Again heavy weight placements are down along with the cattle outside feedlots And this is what we would expect with the fewer amount that we have available But when you go over to the bottom right-hand side, you see where all the cattle and feed coming from It's from these less than 700 pounds. In fact Really it was from less than 600 pounders way above last year way above average So this is the Texas Oklahoma calves that would normally go on winter wheat and then come out and be Sold about the same time when we sell our backgrounded calves are already in feedlots being fed the slaughter weight and so a Couple of things here one is since those calves are already moved That's going to put a floor on how low calf prices go this fall because a lot of them are already been sold But on the other hand when we're looking ahead to January February Selling our backgrounded cattle up here We're not going to have as much price pressure from all those Oklahoma City calves coming to market because they're already in the feedlot So that would be supportive to backgrounded cattle prices in January February and so on so again Like I said, weather is really affecting us there I Do not predict corn prices and don't do much with them my counterpart Frane Olson is right in the next office to me and so I will let him have all that fun but anyway corn prices are record high and So when we're talking about backgrounded calves when feed costs or corn prices if we're going to use corn our record I that is a concern to us but again, I've got a couple more charts to show you and And Although corn is record high we see here in the last month's it's September 1st corn prices from a cattle Backgrounding standpoint or a cattle feeding standpoint has now went in the right direction and the futures market lost Two dollars in a month and this is the cash Omaha prices down a dollar and fifty so again That's even though we have from a historic standpoint high corn prices. We have Record high cattle prices as well And this did go in the right direction and a little bit more on that when I get into the futures and so on But one thing we see here like I said at the beginning things are volatile and we expect that volatility to continue And yeah, they went down two dollars on the futures or a buck and a half here in the cash market But it could easily go the other direction. So Volatility is going to be the name of the game. I guarantee you that so let's just go to some of the seasonal patterns for our calves and and then Kind of wrap up and see if there might be a question These are 550 to 6 weight steers in North Dakota reported by the USDA market reporters and On the bottom and I'm not going to go through every year I could spend a whole hour just on this chart and kind of would love to do so But we have to move along but I have 2007 8 9 10 and 11 on here and you see 2011 on the top running well above any of those previous years and in fact we will set a Record high this year But back to where these come from For the ones on the bottom USDA reported five markets And that is West Fargo, Jamestown, Napoleon Kists and Mandana Stockman's in Dickinson But due to budgetary constraints have dropped West Fargo and Jamestown now so from now on out and Starting this year. It's from the three markets Napoleon Kists and Stockman So for those of you up in mind it in Williston along the highway two markets You're going to have to take several dollars off from this But again, I'm not quite as worried about absolute prices is as I am worried about the trend here But keep in mind that your prices up there would be a little bit lower than along I 94 The seasonal pattern again for calves is to go up reach a peak in April and we don't have a lot of them when they're just a lot Of them are being born and then there's a good demand for grass cattle And then decline be the lowest in October November when they're all coming to market and you see this year we're following that seasonal pattern almost exactly and There are about one. I'll show you the market report from last week But it's right about 139 right now. I expect oh some more weakness We have sold very very few calves in North Dakota yet by this time there would usually be more coming to market But again the grass is green We're still harvesting and a lot of associated issues there and so we haven't sold many But when the bigger runs hit here in the northern plains I do expect some more weakness and you know, maybe down to kind of where we ended up Last year, but still we're gonna have a floor on prices because all those southern or a lot of those southern calves have already went and then again with the shorter supplies and so on Higher prices next year, but from a background standpoint, we're kind of just worried Where they are now and just kind of put that into perspective back here Of course that those prices do look very high or look quite a bit higher But when we go back our previous record high and feeder cattle prices was 2005 that dashed line in the middle and so when we and then the the aqua line there the next one down was 2006 and so we're really just back in terms of prices just a little bit What we were in 2005 was a previous record year and our cost all our cost of production has went up since then So the one thing we don't have record of at least on the cow calf side in particular Would be record profits, even though we have record prices But again, I like to use a previous year as kind of a guide for what prices will do this year And so this year I've been saying let's use 2005 as a guide and we have been running at or above that And so again, I think those 2005 Fall prices would be kind of a good one for us to look at the other thing that I'm going to mention is however Now we have a much wider range in prices than we had back in 2005 And when I get to the market report allude to that a little more and Carl's gonna Carl Dahl and the better be careful with Carl we have two carls But Carl Dahl is going to tell us some more about that Okay, go to our heavier. We we've got calves and so see what they're doing and approximate prices We go to our background of calves coming out and whenever that might be February-March, so this is the same slide with our 750 to 8 weight calves in North Dakota and The other thing on this slide The square boxes is the futures market because the futures market corresponds with our 750 weight steers and so again, you see prices Substantially higher than last year and those other years on this chart and I'll show you the same one in a minute But a Couple interesting things here one is the seasonal pattern for these heavier weight yearlings Tends to be lower in February and March when they're all coming to market And so the lightweight calves are low in October and November when they're all coming to market Then when they're 750 in February March, whatever they're lower and then when I show you the fed cattle You'll see that they're usually low lowest in July when all that big supply hits But last year kind of interesting if you look at that green line in the middle Was last year after October 15th with calf prices of 758 cattle prices started going up And instead of going down and being low in January and February they actually went up and Contrast seasonally Okay, so from a backgrounding standpoint last year was good because our prices instead of going down went up And the futures market this year is telling us the same thing is going to happen in fact those those red boxes there are the today's futures for The rest of this year up around 141 142 and then when we get to the January and the March futures You see that up about 145 and so 145 for 750s and we're selling 139 550s now would mean that we you know that would be an ideal situation price-wise for Backgrounding because we'd even be getting more for the weight that we that we bought or that we kept from cats So was that way last year? I've got another chart also that kind of shows that so that's Positive why is the futures market looking at higher prices into spring? Well several reasons one that I just talked about and that is that we're going to have fewer We're not going to have any coming off of winter wheat and a lot of them are already in the feedlot So they won't be in the market and the feedlots will be needing cattle and our total supplies are lower Anyway, so there are things that point and again a lot of things can affect the market and corn Just going down $2 has played into this if corn would turn around to go back up $2 that would Certainly hurt us. Okay. This is the same chart and that I showed you before again back similar to 2005 prices This is the summary market report and last week not enough of Napoleon to report the market So USD just reported the Kist and Stockman's and I'm not going to go through all of these But I want you to just to kind of remember two prices that is the 550 if I can get this Cursor this 550 price of 138 63 that was the average price for 550 to Six weight steers North Dakota, but again, well in those two markets when we sold 31 of them So there aren't any calves really coming to market yet But 138 63 and then I want you to jump down to the 750 and remember this price to 135 94 We did some more of those were the were the 750 weight steers Okay, not a lot of difference there in price and more on that later, but again that Also all funnels in into background So remember those two the other thing that I want you to look at is the range in prices when we look at those 750 to eight weights there a $10 range in price for the same weight and grade of cattle at the same markets Okay, why such a wide range or go up to those 500s up there a twenty nineteen dollar Come on cursor There 139 to 158 they all weigh five hundred to five thirty eight pounds They're all within of a market fifty miles of each other but a twenty dollar range in price Why is that Carl Dolan is going to tell us why that is and why how we get on the top of that range Rather than the bottom twenty dollars or even ten dollars a lot And I expect it to even get wider here than that in a couple of weeks when we have ween calves versus unween calves And all those nice things that Carl is going to talk about Okay, so again These are just a few lines off the previous chart showing you the 550 this year and these 750 this year and see how those lines are coming together and again the closer they come together The more the market is telling us we want you to background we want heavier cattle We're rewarding that which is just another signal You know why we might consider background This is the CME feeder cattle index again the same story here And I you know I'm maybe just kind of beating this to death But this is the feeder cattle index and this is all 650 to 850 weight steers sold in the US We have a USD market reporter including North Dakota and then add in the South Dakota Kansas, Oklahoma all the other markets The nice thing about this is that these CME feeder cattle index prices coincide with our prices here Just exactly remember that I told you to keep track of that Price for 750s of which last week and the average in North Dakota was 135 594 the cat this last cattle settlement price and these are daily by the way, but the cash settlement price on Friday US cash settlement price was 135 89 So you can't get any closer to that than North Dakota just exactly so we could see even though this is a US This is North Dakota. This is what the futures market is closed out on if you don't get out of a contract So this futures market in the CME cash settlement index come together The September futures when it closed came together. It was exactly what the North Dakota average price was But anyway, you go back there in history and go go up from months starting in With nine which is September go up from September and we always see the high for the year My cursor has a leg in here. So all all those peaks That you see back there are all September 1st come down and you see 9 1 9 1 oh 6 oh 708 and the lows are always right around March 1st go up from 3 1 down in the bottom So we were going down about 20 percent every year until 2009 10 we only went down 10 percent and then in fact we turned around in January and went up and then of Course last year you see what I was talking about From September although we did start in the direction that we usually do on September 1st there and went down $6 $7 the market turned around and by March 1st had went up 17 percent So from where we are right now there at 1 36 if we would go up to the 145 which what's what March futures work? We're at today that would be from current prices up about 10 percent So, you know again kind of a very Contracesional pattern to what we're used to but very beneficial for background And this kind of tells you the same story that I've been talking about all the time and we always hear there are all these Investment funds in the futures market now and they cause all this volatility and they're bad So Mike kind of take home message here our investment funds bad in the futures market Yeah, they cause they cause the market to be volatile and so the top Chart is December corn futures the entire life of the December corn futures the bottom chart January feeder cattle the entire High-loan clothes every day these are daily charts and so our investment funds bad Well for the corn producer on the top If it's there are a lot of other things beside investment funds But if we want to blame it all on them they took corn up to 780 So all the corn producers in Southwest North Dakota on September 1st could say okay sell my corn for 780 and Cattle feeders saying hey, that's pretty high for corn. So what are you doing for me? So we come down to the bottom chart and they're saying well, we're letting you buy feeder cattle in January When they're going to be very very short 750 cattle for 134, but you background or said wait a minute here You got 780 corn and I can only get 134 for my January February calves. That does not work Does it I can't background cattle for that and the answer that is no when we budgeted cattle back on September 1st We had to use something besides corn. We had to use hay and byproducts or sprouted wheat or or peas and that's what Carl Hoppe is going to tell us about all these other things, but The fund said wait a minute back owners just wait a minute We'll take care of you too. So they brought corn down $2 and brought feeder cattle up $12 and All of a sudden made background with corn even possible But my take-home message here is corn went down $2 in the last month and feeder cattle went up $12 Are they going to stay at that level all the way through the next few months and the answer is quite likely not we're going to have volatility corn going down $2 already went back up a little bit and What it's going to do I don't know it depends on a lot a lot of different things in the corn market the corn isn't in the bin yet And so a lot of things can happen there and so you know some pre-pricing and we'll just mention that in a minute might be something to look at so Not going to spend much time on fed cattle here because again We're just talking about backgrounding but again We have record prices for fed cattle in fact every line on this chart has been a record for fed cattle Unlike feeder cattle because corn has went up the only year not a record on here is that bottom green line in 2009 Otherwise every other one has been a record high. It's a record high this year We're gonna the futures market tells us we're going to have another record high next year because futures are all above this year But again, you see those futures next year at higher levels in this year We have to have that in order to get the feeder cattle prices that we have because the other part of the equation be on corn price besides corn prices are fed cattle prices some would happen to fed cattle need be off $10 or whatever that would certainly affect those spring feeder cattle futures as well and We're not doing the long term here, but I just did throw this in to wrap up We're expecting prices for cattle to ratchet up the next several years because again We are not going to see any herd rebuilding for a couple of years and lower Cattle and and lower supplies are going to be positive. So again Take home message night things are going to be very very volatile If you're backgrounding or whatever you're doing you might look at some price risk management tools I don't have time to talk about all of these. I just highlighted LRP livestock risk protection Livestock risk protection isn't available tonight because it's a holiday and the last one was available was Friday Night to to buy into Saturday there will be another one tomorrow after four o'clock, but we could do 144 feeder cattle into January yesterday for Under $4 premium. So, you know And then of course you've seen the futures market And we have options and all these other things that that maybe would fit into your marketing plan But again, you have to know what they are. So To wrap up again, I'm leading now and I've mentioned Carl Dahlin and I mentioned Carl Hoppy and now I'm leading into John DuVetter is going to do some budgeting and maybe looking at some alternative feats to budgeting and so on I do have a budget on my website an Excel spreadsheet that you can use and this is just the one that I have on my spreadsheet and You can change any one of these prices that you want to and And and play around with it for your own, but anyway the one I did I just again started with a 550 up to 750 Pretty good gain there 277 Feeding on the bottom about a 72% corn ration that again on September 1st showed us a negative profit, but I used 550 corn because The ethanol plant in Washburn is about 550. I looked at Sun Prairie and mine and I don't mind It's on here or not, but if mine you're on Sun Prairie today is at 540 so I used 550 for corn and then some hay and 135 calves in and 139 out which again is just right what the market is today. That's saying the market doesn't change 139 calves in 135 out shows a $77 profit if you put 145 up there for calves out, which is where the futures are Anybody good at math know how much that changes that $77? It about doubles it up to $150 if you can put a minute 139 and Have 550 corn and so on and take them out at 145 So I think there's potential in the backgrounding even using corn and the rest of the time here We're going to talk about how do we get on top of the market? And what are some of the other feeds that we can use and get them and what are their cost relationship and so on so I'm going to quit there and First of all, I guess I'll just see if there's a question in Fargo Then we'll go to Carrington then we'll go to if mine. It's on and then we'll go to Williston So any questions in Fargo? Okay. I see none Carrington any questions? No burning questions out here in Carrington Tim. Okay. Why not? Is mine it on Carl? Yeah, my it did get hooked up to here. Okay. Hi, John Any questions and there's a question Tim from mine it shoot the comment Chuck Fleming here from the Barnabar culture I believe that our office is going to pick up pick up that funding for those other two markets great I don't know if that's official yet or not. Okay. Yeah, I know there was talk and so okay. That would be good Thanks, Chuck Any other questions? Those markets and now we're down to just reporting fists and Stockman and Napoleon They're going to try to pick up what the North Dakota egg department's going to Talking about picking up to any other questions might not Williston war yeah, Tim. What about world beef supplies and the possible competition or imports, okay? Our imports are down 20 some percent this year because our dollar is low and there are other economies doing better than we are so the Australians in New Zealand are sending beef to Russia and other places. So our imports are down Cavs, I know there's some concern up and wills to the mind about calves coming in from Canada But our feeder cattle coming in from Canada are down half this year over last year and they were down last year They have a lot of feed up in Canada and feed barley is what they use up there and feed barley relative to corn is We can't really get any in North Dakota, but it's a lot cheaper in Canada And so I fully expect them their calves to stay up there in fact last year one of the reasons why calf prices went up Like they did after October 15th is because Canada came down here and bought calves And I haven't seen any that and they were not selling any again and whether that happens or not But that could even happen again this year. So I don't see We'll see below what we looked at in terms of average from competition and from form competition For beef coming in here or cow And it's the other way we are exporting record amounts of beef to other countries 2011 again, I said the one word I'm gonna say a lot as record. We're gonna export a record amount of beef in quantity and in value wave Far a record any other questions Okay, okay Carl Hoppe, I'll turn it back to you Well, I Wish you really could Tim all of a sudden my computer died Ever have that problem? Yes And it's completely blank right now. So I got to figure out how to how to make this thing work Unfortunately, it might take a few minutes I don't know This is Let's see. Do we have this talk? Oh We have a screen hang on you have any more questions for Tim Tim. I got a question for you Yes, there's a drought going on in Texas And of course there's a lot of cows being killed down south and inventory of cow numbers slaughter numbers are up quite a bit If that ever turns around and they stop slaughtering cows, what's going to happen to our ground beef market? Our cold cow is going to go back up to 80 cents or 90 cents for a dollar Yes, the short answer is yes cows will be very high and When they start restocking down there Heifer calves are may in fact sell for more than steer calves in Texas and Oklahoma because They'll want to be restocking that will somewhat funnel up here But the last few years of course heifer prices as Producers are well aware have really been discounted compared to steers Maybe not as much this year, but we're still seeing those light heifers that are just funneling into the market Still quite a discount on them and I think I think John maybe is going to talk about that But if you're you know We did background a lot of heifers in North Dakota last year and saved a lot and again We had 12% more replacement efforts, so I think there's an opportunity there from a backgrounding and raising standpoint as well But yes Carl they they sold all the replacement heifers down there They've taken the cow herd down. We're expecting a record liquidation of cows in Texas and Oklahoma never in a year Before since we've kept records have they probably sold that many cows so What kind of numbers are you talking about discount wise heifers to steers? Well Right now we get down to those four or five hundred pounds We're seeing like maybe a fifteen dollar discount, but by the time we even get them up to 750 There's only maybe like a four to five discount and in fact Slaughter heifers are selling for a little more than steers now Not much, but you know that spread goes from wide up to a little bit positive So I get there not as efficient, you know don't yield as well and there are issues there, but still I think That if it rain no not if it when it rains in Texas and Oklahoma There is going to be a really good demand for heifers and cows When it rains and it did rain there yesterday not not enough to solve the drought and maybe that's the start But can those pastures come back by next spring? Yeah, I'm not a range management But no that you know they're going to be hurting and yeah It's going to take a while to get their pastures back and stuck mother nature has a you know can heal and In a hurry sometimes we've seen that in Western, North Dakota, but no yeah there and And they're going to need this did not The drought is not broken down there, but it did rain and hasn't rained for a year. So that's good news for them That at least it can rain The other interesting thing to point out is that the Stockman's convention A couple weeks ago. We had a climatologist that was in and talked about kind of the long-term forecast and His model said that that drought is not a single year They said they expect that to go out probably three years It's a climatologist up from UND. Yeah, the pattern that set up last year that caused him to Looks like it's setting up again. So that's that's their concern Expanding it all are kind of in the same area. He just said similar