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Guest Opinions

High Corn Prices May Provide Opportunities

Written by John Ritten

By John Ritten, UW Extension Production Economist

While estimated uses for corn, and the expected high prices associated with increasing usage, pushed corn planting forecasts up this year, cold, wet weather has seemed to delay many well-intentioned farmers.

This holds true locally, as well as at the national level.  As of April 25, only nine percent of corn had been planted nationally, compared to nearly 50 percent of corn acres planted by the same time a year ago. The last week hasn’t helped much. As of May 1, only 13 percent of corn acres had been planted, compared to 66 percent planted by the same time last year.

Even if the actual corn acres planted rebound and exceed levels seen in the last couple years, the late start might limit total production. For example, currently only five percent of corn has emerged, compared to 18 percent at this time last year.

To add to that, the National Agricultural Statistics Service recently reported that corn stocks are down 15 percent from this time last year – a full 170 million bushels below estimates. This shows that usage has not lessened as expected in response to recent high prices, and future needs for corn will have to compete with current usage. Due to the uncertainty associated with this year’s crop and the continuing demand, don’t expect a severe drop in corn prices anytime soon.
This is generally not what livestock producers want to hear. High corn prices usually translate directly to low cattle prices. And, while some markets have seen slight drops in cattle prices in recent weeks, on average prices remain very strong compared to last year (while corn price has essentially doubled as compared to this time last year).

This is mainly due to the shrinking cattle heard, and a smaller supply of cattle to finish. Feedlots need animals in their pens, so they are bidding against each other to stay open. However, high cattle prices are signaling to producers that we need to begin expanding the national herd once again, and it appears as though more heifers are being held back, resulting in fewer animals available to feedlots.

Further impacting the supply of feeder animals, February trade reports show a decrease in cattle imports by 16.5 percent over the previous year, while exports grew by 25.4 percent. A global economy that is beginning to recover, coupled with a still relatively weak dollar, have allowed exports to exceed imports for the last half of a year. This continued demand for cattle, faced with limited supply, has buffered the industry somewhat from the impacts of high corn prices.
However, the high price of corn does offer some advantages to local producers. Feedlots are unlikely to be able to feed high-value feedstuffs to lightweight cattle, and remain profitable, for long. Unless there is an increase in demand for beef to further increase the price of boxed beef, feedlots just won’t be able to continue feeding expensive corn to 5-6 weight calves until finished.

There are some suggestions that adding wheat to rations may become economical in the southern plains in the coming months. While that is unlikely in our area, the value of forage will continue to rise as the price of corn rises over the summer. Of course, the forage is really valued as an input to cattle. The implications are that local producers can make some money this year by producing more beef. One option is to carry calves longer, adding more weight before selling them. However, this may push marketing dates past the seasonal highs this fall.

Another option worth considering is to carry yearlings through the summer. While, historically, the feasibility of stocker systems may be limited to one or two specific production systems in any given year, the current market appears to be rewarding all types of forage-based gains. In fact, over the last year we’ve seen an increase in feedlot placements of animals over 800 pounds. Feeders are willing to buy heavier animals (without drastic drops in price) in the face of high feeding costs. Again, the market is signaling to stocker operations to keep cattle longer, resulting in higher weight placements. And, nationally almost 50 percent of rangeland is in good to excellent condition this week. Wyoming has 68 percent of rangelands in these categories.

Dillon Feuz  of Utah State University recently modeled pasturing feeder steers over the summer instead of placing them directly into a feedlot. Feuz shows that returns to forage will likely exceed returns to placements in a feedlot over the coming months.

His analysis is based on purchasing feeders based on recent Nebraska cattle prices, and includes animal’s costs such as grazing and management costs. His assumptions include a $20 per head per month grazing cost and management costs (vaccination, implants, interest, etc.) of around $65 per head. He looks at grazing from a period of 150 to 250 days, for placements of 550 to 750 pounds. The results suggest that producers should expect to see positive returns for most of the stocker operations he analyzed. Results ranged from around $25 per head for grazing a 550-pound steer for 120 days to over $100 per head from grazing a 750-pound steer for 120 days. To see more of his analysis, and utilize his calculator to evaluate a scenario specific to your operation, visit cattlemarketanalysis.org/stocker.html.

The expected high corn prices will likely keep local famers happy this year, but this doesn’t necessarily mean gloom and doom for ranchers in our state. The above example shows one option to make the current market situation work for cattle producers. Running stockers may not be a good fit for your ranch, yet the current situation does offer some opportunities for all producers. Each producer must be aware of their own production capabilities and utilize the options that work best for them. For example, if this summer yields good range production and you don’t have the flexibility to fully utilize it, you might be able to take advantage of the increased value of forage by leasing some to someone looking to convert it to beef.