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Beef Outlook: Feedlot owners do not pay premium prices for calves when they feed high-dollar corn.
March 6, 2023
As cattle prices move upward and tighter beef supplies become more certain, there is much chatter around the country regarding the prospect of record cattle prices. While there are many good reasons for the optimism, feed prices could dampen the enthusiasm.
USDA projected a decline in corn prices from $6.70 per bushel in the 2022-23 marketing year to $5.60 for 2023-24. That would be welcome news if realized, but still leaves feedlots paying more for feed (and having less money available to bid for calves) than at a $4-per-bushel corn price.
The five-area direct fed steer price for January 2023 averaged $156.30 per cwt, a figure more than 40% higher than just two years ago.
The path of fed steer prices in recent months bears some resemblance to that of the high price period of the previous cattle cycle, when fed steer prices marched to a monthly record high of $169.50 in November 2014.
Meanwhile, feeder steer prices traced a different trajectory.
There was a 30% run-up in the 600- to 650-pound feeder steer price between January 2021 and January 2023. But this pales in comparison to the 75% increase between January 2013 and November 2014 that resulted in a record high of $262.34.
There are many differences between this cattle cycle and the last one, but the biggest one affecting cattle price movements is feed prices.
After retreating to just over $5 per bushel in October 2021, the monthly U.S. corn price averaged $6.76 per bushel during 2022. It remained above $7 for every month between April and September.
This contrasts with falling prices during the harvest seasons of 2013 and 2014, when prices dropped from $7.04 per bushel in the first quarter of 2013 to $3.65 by the fourth quarter of 2014.
Cow-calf producers are gaining marketing leverage, but as calf numbers become scarcer, the ability and willingness of feedlots to pay up for feeder animals is greatly influenced by their feed bills.
According to historical estimated livestock returns from Lee Schulz at Iowa State University, the feed costs for finishing a 560-pound steer calf in Iowa purchased in January 2015 was $265 per head less than for a calf purchased in January 2013. Just imagine how that much additional cash might translate into higher bids for feeder animals if corn prices were to take a similar trajectory over the next couple of harvest seasons.
It seems likely that a new monthly record for fed steer values will be set at some point in the next couple of years.
Beef demand remains stronger than a decade ago, even as consumers face economic uncertainty. The increase in cattle prices during the past two years occurred even as domestic beef availability slightly increased, compared to decreases in 2013 and 2014. We will likely have two to three years of beef availability tightening still ahead of us.
However, it will be difficult to approach previous record high calf prices until we see some downtrend in feed costs.
Brown is a livestock economist with the University of Missouri. He grew up on a diversified farm in northwest Missouri.
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