Record price levels are expected to be with us for several years. Current feedlot closeouts and even packer margins have been solid. However, it doesn’t take much working knowledge of math to know that when feeders are costing $1.25 and cost of gain (COG) is running $1.15 that fed prices will have to average around $1.20 to merely break even.
Many analysts would argue that the recent rally in corn has occurred to ensure record plantings of the grain, as well as a response as a result of energy concerns with the unrest in the Middle East. However, barring a major weather disruption this summer, all the bad news has been already priced into the corn market, they say. Regardless, we’re looking at both unprecedented COG and unprecedented prices.
I read an article recently that claimed hog producers have enough cushion right now to likely remain profitable even if corn hits $7.50/bu. The cattle-feeding industry won’t be as fortunate.
While tight numbers may be good for cow-calf producers, it means cattle feeders will likely be looking down the barrel of the gun, with packers occasionally occupying that position as well. But, feeders and packers understand the dynamics of the marketplace; they realize that cow-calf producers are, and will continue to be, in the driver’s seat for a while.
While rising corn prices haven’t halted the rise in feeder-cattle prices, they ultimately will limit how high prices will go. While supplies will continue to push prices higher, it is domestic and export beef demand that will ultimately determine at what level we settle into for the next 4-5 years.
If we get adverse weather and corn prices move higher yet – with cattle feeders being pinched still harder – we’ll see prices for cow-calf producers stay flat. But if good weather conditions and a normal seasonal decline of prices occur into the fall, we’ll see calf prices ratchet up a little more. Exports have been a huge driver; as demand continues to gain momentum, that will be very supportive of prices as well.