Few would argue that the state’s cattle industry has experienced a difficult year. Most of the difficulty can be attributed to this year’s widespread drought. The heat and dry conditions have not only ruined forage and pastures, but corn and soybean yields in the key row cropping areas of the U.S. Corn Belt. That has in turn driven corn and soybean prices to record highs this summer. The economic impacts of this year’s drought will be long-lasting.
As alluded to, the cattle industry is and will continue to be negatively affected by feed costs and forage availability for months to come. Higher corn and soybean meal prices have reduced the value of calves and feeder cattle. The lack of pasture has also led to the early movement of cattle.
Grain prices began a historic run higher in early June, with corn futures increasing just over 50 percent since then. Soybean meal prices are up about 40 percent over the same time period. In fact, meal prices have been increasing throughout 2012. Since the first week of January, soybean meal futures have risen 75 percent. A combination of poor growing conditions and lower production in South America as well as the U.S. Midwest has kept soybean prices moving higher all year.
Forage conditions have been horrible in Arkansas this year. As of August 20, the USDA National Agriculture Statistics Service (NASS) indicated that 85 percent of pastures in the state were in “very poor” or “poor” condition. The same weekly report indicated that producers were feeding hay and other feed supplements. Obviously, if rainfall amounts don’t increase soon, continued liquidation of cattle can be expected.
As grain prices started to move higher in June and pastures burned up, calf and feeder cattle prices turned lower. Arkansas steer calf prices were about $175 per hundredweight in mid-June. Prices are closer to $140 today for a 550 pound calf.
The University of Arkansas Cooperative Extension Service has a web link that provides a weekly summary of cattle prices for Arkansas as well as neighboring states.
The financial impact of tight grain supplies will be felt well into 2013. A considerable amount of pressure is on South America to deliver record corn and soybean production to the world next spring. Until then, grain prices will hover at historically high levels in order to ration available supplies.
A key area for cow-calf producers to focus on is marketing, as it relates to feed cost management. I strongly encourage producers of all types, whether row crop or livestock, to seek professional help in developing a marketing plan. This will not only allow a farm business to protect the value of what it’s producing, but what it has to purchase, such as fuel and feed.
Without question, commodity markets have changed. This has much to do with the adoption of the Internet. The price volatility seen today is a direct result of the constant deluge of information, from around the globe, and the market’s effort to process it and assign a value to it all. Even still, today’s market volatility shouldn’t discourage farmers from devoting the time to develop and implement a marketing or “risk management” strategy.
Capturing a profitable cattle price or locking in a desirable feed purchase price is attainable through the futures market. The trick however is finding a farm marketing consultant or commodities broker that understands agriculture. Make the time to research their track record and ask them for client references. Determine if they have the patience to explain marketing strategies when necessary. This selection process really is a decision about the future of your business.
Use and consider every business tool at your disposal to weather today’s storm. High feed costs and lower cattle prices due to forced liquidation will create financial stress, likely over the next 12 months. Assuming a return to trend crop yields next year and lower beef supplies, profitability in cattle operations should return in late 2013.
Scott Stiles is an extension economist with the University of Arkansas Division of Agriculture.
