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Agricultural News

Dr. Derrell Peel on how Rising Feed Prices Impact Cattle Markets

Mon, 05 Apr 2021 09:00:47 CDT

Dr. Derrell Peel on  how Rising Feed Prices Impact Cattle Markets Mondays, Dr. Derrell Peel, Oklahoma State University Extension Livestock Marketing Specialist, offers his economic analysis of the beef cattle industry. This analysis is a part of the weekly series known as the "Cow Calf Corner" published electronically by Dr. Peel and Mark Johnson. Today, Dr. Peel talks about the rising feed prices.

USDA-NASS released two reports last week that added more fuel to red-hot grain and oilseed markets. The information about current and future corn markets has significant implications for cattle markets. The quarterly stocks estimate for corn was lower than expected, indicating that strong domestic and export demand for corn is pushing corn inventories for the rest of the marketing year even tighter. The Prospective Plantings report indicated a total corn acreage for the coming crop year up less than one percent and well below pre-report expectations. Soybean acreage was likewise well below expectations. Total planted acreage is estimated at 316.164 million acres, up about 6 million acres from 2020. However, the trade was expecting more of last year’s 9 million acres of prevent plant to return to production in 2021. Of course, upcoming weather conditions will impact exactly what crops get planted and the total acreage.

Weekly average cash corn prices in southwest Kansas and the Texas Panhandle are currently reported at $5.85/bu. in Dodge City, $5.99/bu. in Garden City and $6.01/bu. in the Texas Triangle.   These prices are up 79-82 percent over the low in early August, 2020 across these locations.   Nearby corn futures for May are currently $5.59/bu. last week, with new crop December corn futures at $4.91/bu.

Current corn prices suggest that feedlot cost of gain in the southern plains will continue to push higher as feedgrain prices are fully reflected in feedlot rations. The latest Kansas Focus on Feedlots reports February steer closeouts with a cost of gain (COG) of $88.61/cwt., up 16.9 percent from the recent low in October 2020. Projected steer COG for current placements is $103/cwt. in the current Focus on Feedlots report.

Feedlots will respond to sharply higher COG in several ways, reflecting the flexibility of cattle to change production systems and take advantage of ruminant biology. Feedlots are expected to generally favor higher placement weights in the coming months thereby encouraging the cattle industry to use less concentrate feed by growing cattle bigger with forage-based stocker and backgrounding programs.

Feedlots will also look for opportunities to adjust feedlot rations using cheaper substitute ingredients if possible. Wheat may offer some potential in feedlot rations in the coming weeks and months. Winter wheat prices in the southern plains have increased in the last eight months but relatively less than corn. Hard red winter wheat prices in Dodge City, for example, have increased about 41 percent since last August. Current cash wheat price is $5.37/bu. (compared to a corn price of $5.85.bu.). At these prices wheat becomes more attractive in feedlot rations. In general, a wheat price of 107 percent of corn price is equivalent on a price per pound basis (60 pounds of wheat per bushel versus 56 pounds in a bushel of corn). In some circumstances, wheat may have additional feed value compared to corn due to a higher protein content. However, cattle rations typically do not need the additional protein so wheat value is based primarily on energy content. Feedlots do not change rations quickly or for short periods of time but will adjust if market conditions suggest that an extended period of alternative feeds is likely. With winter wheat harvest bringing new crop wheat supplies to the market in June, prior to new crop corn in the fall, wheat may be adopted in feedlot rations.



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