USDA last week lowered its 2006-07 corn yield estimate by 2.1 bu./acre from its December figure, signaling good fortune for corn growers but dark news for cattlemen.
The revised estimate calls for total production of 10.535 billion bu., 210 million bu. lower than previously thought, but still the third-largest crop in history. Compounding the pain was USDA's 50-million-bu. increase in its export estimate, while maintaining its projected 2.15-billion-bu. demand figure for ethanol production. With ending stocks dropping 183 million bu., to 752 million bu., it represents the tightest supply/demand balance since the 1995-96 marketing year, says University of Nebraska economist Darrell Mark.
Writing for the Livestock Marketing Information Center (www.lmic.info/), Mark says volatility in the corn market is playing havoc with cattle feeding breakevens. A 750-lb. feeder steer placed on feed in Nebraska in mid-January would have a breakeven selling price of $90.07/cwt in late June, assuming average feeding performance, using $3.75/bu. for corn and $85/ton for hay, plus other costs at market rates. This puts total cost of gain at $74.37/cwt.
"An increase in the corn price to $4/bu. increases the cost of gain to $76.93/cwt. and the breakeven selling price to $91.10/cwt. Thus, the 25c/bu. corn price increase raises the breakeven selling price for this yearling steer placement by about $1/cwt.," Mark says.
The result will likely be lower calf prices for cow-calf producers, he says. Since Sept. 1, 2006, the prices of 500- to 600-lb. and 700- to 800-lb feeder cattle in Nebraska have decreased $17.47/cwt. and $19.94/cwt, respectively, and Nebraska fed cattle prices have declined $3/cwt. During this same time, Omaha corn prices rallied $1.41/bu.
"Should corn prices continue their surge higher, look for feeder cattle prices to continue their downtrend," Mark says. "Regardless, the uncertainty in the corn market could result in cattle feeders bidding a 'risk premium' into the feeder cattle market (in the form of lower prices) to gain some additional protection or 'cushion', " Mark says.
-- Livestock Marketing Information Center