Place Your Bets On Cattle And Corn Prices

Summer's weather is as much of a moving target for cattle feeders as for corn growers. With sub-$5 corn, small feedlot profit prospects will improve.

Published on: Jun 13, 2013

By Harold Harpster        

The latest long-range forecasts are for continuing dry conditions in the west and improved moisture conditions throughout much of the Corn Belt and Northeast. If this continues, it'll have major ramifications for the beef business.

The national herd is expected to drop another 3% to about 29.3 million head this year. Per capita retail beef use will fall again to about 56 pounds.

The "meat marketplace" gives consumers more chicken and pork choices. While beef supplies will decline about 4%, broiler production will likely increase 2%, and pork supplies will increase 1% to 2%.

MORE BEEFERS AT THE BARN? If Mother Nature cooperates and a bumper corn crop results in prices under $5 a bushel, Harpster says feedlot profitability will improve.
MORE BEEFERS AT THE BARN? If Mother Nature cooperates and a bumper corn crop results in prices under $5 a bushel, Harpster says feedlot profitability will improve.

Many market watchers have been wondering when consumers would back off markedly from retail beef purchases. That appears to be happening now.

This year, feeder calf supplies will remain tight – and high priced. Many cow-calf producers would like nothing better than to expand their herds. But Mother Nature keeps stacking the deck against them.

A recent summary of U.S. pasture conditions found that over 50% of our beef cows are located where about 40% of pastures have been rated as poor or very poor.

Combining the feed and feeder prices experienced over the last two years, most feedlots have been drowning in red ink. Losses have fluctuated between $100 to $150 a head.

That's for heavier yearlings that may only stay in the feedlot four to five months. Some economists estimate it would take a fat market in the high $130s just to break even under current conditions. 

Odds for cheaper corn improve
Nothing would be more conducive to making the fed sector healthier than reasonably priced feed. May's USDA forecast was supportive.

Corn acreage was pegged at 97.3 million acres, the most in more than 75 years. Proper conditions should give us a national crop 31% higher than last years – 14.1 billion bushels assuming a 158-bushel average yield.

A lot of good things have to happen between the spring forecast and fall's harvest. Should the bumper crop come to pass, look for a corn market in the $4.50 to $5 range. Soybeans should also drop, perhaps as much as $3.50 to $4 per bushel from last year.

A moderating corn market would have positive impacts on both segments of the cattle business. As the corn market exploded in recent years, many cow-calf producers saw their opportunities to rent grazing land disappear as the "plant corn fencerow to fencerow" mentality took over. A return to more "reasonable" corn prices could help slow that trend and provide more land base for herd expansion.

Harpster is a Penn State animal scientist and a beef cow-calf producer.