Feedyard managers have been scratching their heads for several months now, trying to figure out how to deal with higher corn prices. Trouble is, about the only thing they've accomplished is to increase the circumference of their “worry spot.”
“It's been quite a struggle,” admits Brian Price, manager at Brookover Feedyard, Garden City, KS. “It's hard to know exactly what to do.”
Price says he's adjusted by owning more corn out ahead of his needs.
“Usually in this area, we've never had to own corn much more than 60 or 90 days ahead. Now, we probably own corn from now to the end of the year, in certain amounts.”
Price says he's tried to look at what would make a reasonable cost of gain and then own the corn. “But it's changed the way we're looking at owning corn; quite frankly, it's changed it pretty dramatically.”
In addition, he's adding more byproducts into his ration to cheapen it back, as are other managers in his area.
“I know people who are using everything from cotton burrs to cornstalks to help cheapen up the ration,” Price says. “I think people like us are using the distillers product at as high a level as they can.”
Stacy McCasland, manager at Wheeler Feedyard, Wheeler, TX, encourages customers to look hard at the futures market for opportunities to take some price protection. Beyond that, “I just tell people to get through this turn of cattle and we'll have to be real careful about how we buy the next turn.”
He's also spending a lot of time looking at other input costs, trying to manage other parts of the feedyard as tightly as he can. Price agrees and says it starts in the feedmill.
“One thing we really stress to our people who process the grain is that we've got to process it as efficiently as we can, so we get everything out of that kernel of corn we can. That means you've really got to step up your quality control on your flake management,” Price says.
Leo Vermedahl, manager at Carrizo Feeders, Ltd., Texline, TX, has continued to stay in the cash market, at least for now.
“I don't think corn will go much higher from here, so I'm going to continue to price it one month at a time into the summer,” Vermedahl says. “But I need to reevaluate my grain-trading ability when I start looking at the new crop.”
In the meantime, like McCasland and just about everyone else, he will compensate. “We're just living with it and marketing our cattle with shorter days,” Vermedahl says.
Hay prices, driven by drought, have also shot skyward. To compensate, Vermedahl cut back on the alfalfa in his ration and added more silage.
“We bought silage back in the spring when the price was still pretty cheap. So we're using more silage to compensate for the increased alfalfa cost,” he says.
The change it's going to cause is fewer days on feed and lighter carcass weights. McCasland says he'll start moving cattle a little quicker.
“If this thing will level out and trade between $4 and $5, then we can figure it in, get used to it. The cattle-feeding sector will adjust and be fine. It always does. But sometimes it takes a year or two to get all that done.”
Bottom line the guy who's going to take the hit will eventually be the calf producer, McCasland says. “And being the grassroots of the industry, when those guys are hurting, the industry hurts.”