Volume 7, Number 7 - July 2001

This Month in Ag Connection

• Value Added Beef Production
• Big Bale Hay Storage
• Impact & Use of PAYLEAN in Market Pigs
• Ag Tax Tidbits: Minimum Interest Rates on Loans to Relatives & Friends
• Optimum Ribeye Size

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Value Added Beef Production

Current cattle prices are favorable which may lead to expansion and suggests lower prices by 2004. This is coupled with a change in the way agricultural products are marketed ¾ moving from commodity systems to consumer-driven specialty markets. As consumers demand specific quality characteristics, processors are seeking ways to meet the demand. As the retail market changes, the way steers and heifers are valued will also change ¾ buying on yield grade instead of live animals. Beef producers need to prepare for the changing market.

The first step in the process of moving to value added beef production is to find out where you stand. Very few beef producers have actually acquired carcass information on the calves they raise. Carcass data can be obtained by retaining ownership through finishing or enrolling in a special marketing program that returns carcass data. Two examples the University of Missouri Outreach and Extension conducts are the Missouri Beef Cattle Feedout program and Premier Beef Marketing Groups.

Once the carcass data is collected and a producer finds their current base, the next step is to make the necessary genetic changes to produce carcasses with the desired traits. This may require dramatic changes in the breeding program. Genetic changes can take many years to achieve making it essential for producers to begin collecting carcass information. Now is a good time to improve herds ensuring we enhance the value of the product offered to changing retail markets.

(Author: Wesley Tucker, Farm Management Specialist)

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Big Bale Hay Storage

There are several alternatives for reducing big bale storage losses. A factsheet from the Ministry of Agriculture, Food and Rural Affairs in Ontario gives some interesting figures on costs of storage losses and the costs of various protection alternatives. Their storage losses with outside storage amounted to 15-20% per year. Our storage losses are often that high or higher. Click here to view factsheet.

(Author: Don Day, Ag. Engineering./Information Technology Specialist)

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Impact and Use of PAYLEAN in Market Pigs

The use of lean value carcass pricing systems has increased selection pressure for lean growth rates, increased carcass lean percentages and improved lean feed conversion. Now producers have another tool to help compete effectively. It is a feed additive containing ractopamine hydrochloride, a compound that increases muscle protein growth and improves feed efficiency. Ractopamine (PAYLEAN) is in a class of compounds called phenethanolamines. PAYLEAN is neither a hormone, steroid, antibiotic nor a product of biotechnology.

In research trials, using Paylean at 18 gram/ton for the last 90 pounds of live weight, significant improvements were seen in carcass composition (Table 1).

PAYLEAN improves leanness across genotypes of pigs, however greater lean growth response will occur in pigs of high lean growth genotypes.

Lean growth response is not constant over the entire 90 lb. gain feeding period. The response increases, reaches a plateau, and then declines. The maximum response is achieved at 22-26 lbs. of live weight gain or approximately 19-24 days on PAYLEAN (20 ppm) supplemented feed.

When fed from 150-240 lb. live weight, PAYLEAN increases daily fat-free lean growth rate at a time when lean growth is normally decreasing. Dietary lysine requirements will increase with the use of PAYLEAN. Based on projected requirements, producers may consider phase feeding two levels of lysine from 150-240 lbs. when feeding PAYLEAN. Feeding PAYLEAN repartitions nutrients away from fat growth towards lean growth. Feed intakes vary among commercial production units, genetic populations, and seasons. Low energy intakes can limit the lean growth rate of pigs.

The economic returns of feeding PAYLEAN has two components. PAYLEAN improves growth rate, feed efficiency and dressing percentage (Table 2). This $3.64 per pig advantage can be realized by all pork producers. The second advantage of feeding PAYLEAN is the increased value of the extra 10.45 lbs. of fat-free lean. This is approximately $9 to $11 for pork processors selling closely trimmed loins and utilizing the ham lean in value added products. One difficulty is predicting the percentage of this $9 to $11 advantage that will be received by pork producers.

Sensory panels have found no difference between PAYLEAN fed pigs and pigs fed control diets for juiciness, flavor, or tenderness. However, two trials have found PAYLEAN fed pigs to have slightly higher Warner-Bratzler shear force values.

Table 1
Summary of Ractopamine Response*

Response	Percent Improvement
Increased fat-free lean growth	34.0%
Increased protein accretion	24.0%
Decreased feed intake	5.5%
Increased ADG	8.9%
Improved F/G	14.2%
Reduced backfat thickness	13.7%
Increased carcass lean mass	11.1%
Increased dressing percent	1.5%

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Table 2
Value per pig of feeding 18 g/ton
Ractopamine for the last 90 lbs. before market

Growth 4.1 less days x .15	.62
Feed Cost
337 lbs. of .60% lysine $.0503/lb.	16.95
289 lobs. of .78% lysine $.0539/lbs	15.58
48 lbs. less feed	1.37
Dressing percentage 1.1% greater at 250 lbs. live weight 2.75 lb at .60/lb carcass weight	1.65
Total	$3.64

*18.5 g/ton (20 ppm) level for the last 90 lbs. of live weight gain.

PAYLEAN-ractopamine hydrochloride by Elanco

(Source: A.P. Schnickel and B.T. Richert, Animal Sciences Department, Purdue University)

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Taxation Tidbits: Minimum Interest Rates on Loans to Relatives and Friends

There can be income tax and/or gift tax consequences if an individual loans money to a relative or friend at a below market rate (BMR) of interest. An interest rate is BMR if it is less than the appropriate federal rates (AFR). The BMR provisions basically require a lender and a borrower to recognize a minimum amount of interest income and expense, if the interest rate provided in the loan agreement is less than the AFR. The minimum amount is the interest calculated at the appropriate AFR.

Applicable Federal rates are published on a monthly basis - providing applicable rates for short, mid, and long-term loans. Additionally, AFR (also known as safe harbor rates) are provided for monthly, quarterly, semi-annual, and annual compounding. The AFR for June 2001 are as follows:

	Annual	Semi-annual	Quarterly	Monthly
Short-term	4.15%	4.11%	4.09%	4.08%
Mid-term	5.02%	4.96%	4.93%	4.91%
Long-term	5.75%	5.67%	5.63%	5.60%

The short-term AFR is for loans with terms of 3 years or less. The mid-term is for loans with terms over 3 years, but not over 9 years. The long-term AFR is for loans with terms of over 9 years.

IRS Code provides some exceptions to the BMR provisions. For loans to family and friends the following two exceptions can provide relief from compliance.

1. Loans of $10,000 or less. The BMR provisions do not apply when the total outstanding amount of loans between the borrower and lender is $10,000 or less and the loan funds were not directly used to buy or carry income producing assets.
2. Limit on forgone interest for gift loans of $100,000 or less. If the outstanding loans between the lender and borrower total $100,000 or less, the forgone interest to be included in income by the lender and deducted by the borrower is limited to the amount of the borrower's net investment income for the year. If the borrower's net investment income is $1,000 or less, it is treated as zero. A gift loan is any BMR loan where the forgone interest is in the nature of a gift. This exception is applicable only to income tax. Gift tax consequences are not eliminated.

For gift and demand loans, the difference between the interest calculated using the stated rate and the AFR is generally treated as income to the lender and a gift from the lender to the borrower on December 31.

For term loans, a lender who makes a BMR loan is treated as transferring (gifting) the difference between the amount of the loan and the "present value of all the scheduled payments', using the AFR, to the borrower on the date the loan is made. A term loan is defined as any loan that is not a demand loan.

Note of caution: these two exceptions do not apply to any loan if the avoidance of federal tax is one of the main purposes of the interest rate arrangement.

The IRS publishes the applicable federal rates each month in the Internal Revenue Bulletin. Click here to view the Internal Revenue Bulletins available on the web. Additionally, your accountant and/or tax consultant should have resources that publish the applicable federal rates.

(Author: Parman Green, Farm Business Management Specialist)

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Optimum Ribeye Size

A Colorado State study helps clarify the question, "What is the ideal size for a ribeye?" Colorado researchers took Low Choice beef carcasses with ribeyes ranging from less than 11 square inches to more than 16 square inches. They were cooked to medium rare doneness and evaluated for cooking characteristics and sensory attributes. The portion size was constant as in a restaurant ¾ the thickness of the steak decreased as the ribeye size increased. The thickness of the steaks ranged from 1.11 inches for the smallest ribeye to 0.87 inch for the largest.

The average cooking time decreased significantly from 19.5 to 11.3 minutes as the ribeye area increased because the larger ribeyes had been cut thinner to have a constant weight. The tenderness scores were significantly lower for ribeyes larger than 16 square inches.

The conclusion was a 12 to 15 square inch ribeye is desirable for cooking time and tenderness in the foodservice business. This puts the desired thickness in the 0.9 to 1.0 inch range with a 13 to 16 minute cooking time.

The take-home message is to be aware of the ribeye size you are producing. Don't select extremes for several generations if you're using EPD's for ribeye or ultrasound data since muscling is highly heritable. If you have data on carcasses that are 650 to 850 pounds and ribeye sizes are 12 to 15 square inches, you should be on target.

(Source: Eldon Cole, Livestock Specialist, SW Region)

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