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Cattle feed costs impacting profits in 2021

TAGS: Marketing
emholk/Getty Images Calves eating corn from feed bunk
HIGH FEED COST: Cow-calf producers are paying more for corn this time of year. It may be a trend that continues. Farmers may need to search and plan for other feed sources.
Beef Outlook: Look for cheap feed if corn prices continue to trend higher.

Corn prices have surged higher at the end of November and may take a bite out of cow-calf returns in 2021.

The weekly average nearby corn futures contract gained more than a dollar from early August through mid-November. This has affected feeder cattle values, with nearby feeder cattle futures losing $7.50 during that same timespan, even as live cattle futures advanced by more than $7.

As the amount that feedlots are willing to pay for feeder animals declines as the cost of adding weight to those animals increases, higher corn prices have the potential to lower returns for beef cattle producers.

Less corn in the mix

Corn prices had remained in a relatively stable range most of the time since mid-2014, breaking above $4 per bushel less than 10% of the time in terms of weekly average nearby futures. Recent market factors have driven corn futures well above the $4-per-bushel threshold, and the expected duration of the current crop price rally is dependent on several factors.

A shift in commodity buying patterns in China has played a large role in recent price movements. After significantly increasing imports of U.S. meat products to counteract a much smaller hog herd and meat supply due to African swine fever, China is now quickly ramping up hog supplies. This has not only caused U.S. meat exports to China to decline — beef exports continue to increase from a low level, but pork exports have moderated — it has also led to strong demand for U.S. feed commodities.

Value of U.S. exports to China in 1st quarter chart

Increased corn export demand has coincided with a time when estimates of the size of this year’s corn crop have been declining and existing stocks of corn have been revised lower, all putting upward lift on prices. While the recent shift in China’s buying habits is not expected to change course anytime soon, there are other factors to consider in the corn price outlook that may moderate or reverse recent gains.

Uncertainty on horizon

With the U.S. harvest season coming to an end, market attention will quickly turn to the progress of the corn crops in Brazil and Argentina.

Combined corn production in these two nations only amounted to 28% of the U.S. total as recently as 2015, but recent projections have Brazil and Argentina producing a corn harvest more than 43% of the size of the U.S. crop.

Further increases to South American corn projections could moderate corn prices. Also, plenty of uncertainty remains regarding the coronavirus pandemic. If new lockdowns or travel restrictions are instituted, gasoline and ethanol demand would again suffer, pulling down corn prices.

Corn prices exhibited a brief spike in mid-2019, as producers struggled to get the crop planted in a timely fashion. But prices declined nearly as quickly as they rose, once growing season conditions improved and the market weighed large stock levels into its price determination. While a similar pattern could evolve in the months to come, there is no guarantee that higher feed prices will not be with us for a while.

Now is the time to be thinking about how your operation might best weather the storm if feed prices were to advance further.

Brown is a livestock economist with the University of Missouri. He grew up on a diversified farm in northwest Missouri.

 

 

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