Here is BEEF’s Tip of the Day for cattle feeders: Tape up. It’s going to get rough out there.
“Get rough?” you ask. Hasn’t it been rough enough already?
Indeed it has. But Dan Basse’s forecast for the next three quarters promises an even rougher ride when it comes to the corn market.
”I’m concerned the U.S. corn crop is going to be a billion bushels less than what they’re telling us,” says Basse, president of AgResource Company, an ag price research firm in Chicago. “So we’re talking about a sub-10 billion bu. corn crop, maybe 9.6 or 9.7 billion bu., relative to the yield data we’re picking up.”
Should that bear out, it will equate to somewhere around a 113 bu./acre yield. A harvest around 115 bu./acre could shoot corn prices on the board to $9.50 to $10 or higher this fall, according to his analysis.
“I don’t think those numbers are set in stone,” he told cattle feeders recently at a Certified Angus Beef Feeding Quality Forum. “But I am concerned about a smaller harvest and I want you to think proactively in terms of what you’re going to do to manage your risk over the next three quarters.”
To manage that upside risk, he suggests a basis contract. “What else we’re finding beside a poor yield in the Midwest is poor quality,” he says. “We had corn coming out of combines at 37 lbs. test weight. If I’m not making popcorn, what am I going to do with that other than push it through a rumen?”
However, just getting corn this fall will be a challenge. “The commercial grain company has a problem. He can’t buy much grain other than what’s already contracted from the farmer. If that corn is less quality, he’s going to have to raise his bids for No. 2 corn.”
That means a rising basis. “So one way to assure yourself of a supply is to do a basis contract for No. 2 corn. That gives you the supply of corn with the quality associated with it. And if the market has deep discounts for aflatoxin or light test weights, you can then come back and renegotiate with that commercial for those opportunities.”
One factor in the smaller corn harvest is the large amount of corn being chopped for silage. Basse says there are Midwest farmers who haven’t had cattle standing on concrete for decades who are buying cows and heifers and will winter them on silage.
“Look for a lot of this to happen in the Midwest in the months going forward,” he says. “They think they have a window between now and maybe the middle to the end of November to lock down cows.”