Extension by John RittenWritten by John Ritten
By John Ritten, UW Extension Production Economist
We’ve all heard by now that the USDA has drastically reduced the expected corn harvest, and, as a result, we’ve seen the associated spike in grain prices. Some are worried what impact this will have on cattle prices this fall. In general, feeder’s ability and willingness to pay for a specific input is impacted by output prices as well as prices of all other inputs.
So, feeder’s ability to pay for cattle, for example, relies in part on the price of both beef and grain. Unfortunately, there are many more uses and markets for grain than there are for calves. Therefore, feeders have less ability to impact feed prices than cattle prices. If input costs increase faster than beef prices, feeders will either have to pay less for inputs, go out of business or at least temporarily lose money. The current expectation is that every steer placed this year will lose about $140. It would seem, then, that feeders are going to have to start lowering bids for calves in response to increased feed costs, and we have, in fact, seen a dip in cattle prices over the past few weeks.
Additionally, as no doubt many of you have noticed, we are experiencing a rather dry year. We are already at low cattle numbers nationally, and a lot of local animals have already seen the inside of the sale barn in response to lack of forage available this year. The decrease in calves that will be available this fall will ultimately trump the high grain prices when it comes to fall placements. Feedlots need to keep animals in pens to cover administrative costs, and they will have to again bid aggressively to keep bunks full. While we may not see record cattle prices this fall, limited cattle numbers should ensure favorable prices. Also, feedlots will want slightly heavier animals to place in order to lower their feed bill, given the amount of lightweight placements they’ve already taken on.
Here’s how current prices compare to the same time last year. As of July 11 for the Nebraska area market, 500 to 600 pound steers are down just over one percent to $163.33, while 700 to 800 pound steers are up 1.5 percent to $148.27. It is interesting that nationally 500 to 600 pound steer prices are still above last years’ levels. Corn is up over 15 percent to $7.42, while boxed beef is up eight percent to $193.52.
It should be alarming that corn is up by 15 percent compared to box beef only being eight percent above last years’ prices. This would imply, in normal years, that we should expect calf prices to drop, as feeders are not going to be able to pay an increased price for calves and remain in business in the long-term. However, this is not a “normal” year, and the extreme reduction in national herd numbers in response to recent drought events will force feeders to continue to bid high for placements. The current forecast is for an additional decrease in national numbers of at least 1.5 percent this year.
So, try to take advantage of this year. If you still have calves, you should make some decent money this fall. If you can find grass (good luck), it may be wise to try to add on a few extra pounds prior to the sale barn as feeders will reward you for it, given current feed costs. If you have had to liquidate some breeding stock, you may want to consider some alternative operational strategies before restocking.
Recent research at UW and other places across the high plains suggests that including yearlings in your operation allows more flexibility when making decisions, especially during times of drought. A good rule of thumb is that breeding stock should not account for more than 60 percent of forage utilization in an average year, with yearlings covering the rest. In dry years, this ratio allows you to sell those yearlings early, and retain desired genetics in your breeding stock. And, if grain prices stay elevated, feedlots are going to continue to be happy to take heavier placements from you.