As cattle feeders continue to replace an increasing amount of corn with wet and dry distillers grains, cattle feeders need to focus more on managing distillers grain prices.
Seasonally, cattle on feed numbers generally bottom in September and increase by 12% to the seasonal high in December. As cattle feeders place fall calves over the upcoming months, they typically consider locking in feed costs.
Seasonally, says Darrell R. Mark, assistant professor, Department of Agricultural Economics, University of Nebraska-Lincoln, corn prices are at their lowest during fall harvest. Feeders normally can take advantage of those prices by purchasing corn, forward contracting, and basis contracting.
"But, as finishing rations continue to replace an increasing amount of corn with wet and dry distillers grains (DDG), cattle feeders need to focus more on managing distillers grain prices," Mark says.
"Long series of price data on wet and DDG to analyze are limited, and prices that are available may be thinly traded or not necessarily representative of actual trades made between ethanol plants and cattle feeders or feed buyers," he says. "Still, it is useful to consider trends in these feed products."
The seasonal trend is for DDG prices to peak in mid-April and decline throughout the summer. Seasonal lows typically occur in August at about 80% of the annual average. DDG prices then increase through the fall and early winter months to peak in December and January close to 20% higher than their annual average.
"Supposing that seasonal trend occurs this year, cattle feeders may wish to forward contract or lock in DDG prices soon for the upcoming months," Mark explains. "Spot market purchase volumes may be limited due to storage considerations – particularly for wetter products – but buyers could talk with their suppliers about locking in prices for the future for routine deliveries."
Additionally, new research is exploring ways to store distillers grains that may make stockpiling supplies more feasible.
As ethanol production continues to rapidly increase, the availability of DDGs and wet distillers grains will increase. Thus, co-product feed prices may not see as large a seasonal increase in the third and fourth quarter of upcoming years.
"In fact, the DDG price increase was much smaller for 2004 and 2005 than for 2003," Mark adds. "So, in this ever-changing co-product market, prices may not increase in late 2006 as much as the historical trend suggests."
Market prices and price trends will likely differ greatly across localized markets depending upon the relative supply and demand for the distillers grain products.
From the Livestock Marketing Information Center, Lakewood, CO; www.lmic.info