The price of feed influences what feedlots will pay for cattle. Except when it doesn’t.
There’s normally a pretty direct relationship, according to University of Missouri Agricultural Economist Ron Plain.
“Almost all steers and heifers go to feedlots and eat corn for 4-5 months, or maybe longer, before they go to slaughter,” Plain told Ozarks Farm & Neighbor. “The higher the price of grain, the more costly feedlot gain is, and the less cattle feeders can bid for feeder cattle.” Plain said a change in corn prices filters through the supply chain pretty quickly. “If corn futures go up, and suddenly it looks like I’m going to have to pay 25 cents a bushel more than I was planning on to feed cattle, then I will pretty quickly reduce my bid price for feeder cattle,” he said.
But with that said, feedlots have bills to pay, and they need to keep some cattle on feed even if it’s not profitable. Plain said, “They’ve got a lot of fixed costs – there’s the facility itself, the pens, the feed mill and the employees. The overhead costs are lowest per animal when the feedlot’s full, and so one of the things that feedlots are very aware of is the need financially to keep the feedlots full. At times, that means they’re going to have to pay more than they’d like to when they’re buying feeder cattle. The alternative, to not get them bought and to try to get along at half-capacity, is not very appealing, either.”
As of mid-July U.S. feedlots were only 65 percent full, according to Dr. Tom Troxel, associate head-animal science for the University of Arkansas System Division of Agriculture. That has a lot to do with a lot less cattle in the United States,” Troxel told OFN. “Average daily gain of feedlots is about 3.2 lb/day, and average cost of gain is about $1.31. With fat cattle in early July at $1.22, that pencils in a loss.”
Particularly with higher feeder cattle costs; those prices rose throughout the early summer, after staying depressed in the spring. Troxel said, “Generally, every year we’ll see 500 pound calf prices seasonally peak in the spring. We didn’t see that this year; calf prices were $25/cwt less in the spring of 2013 than they were in 2012, and that really impacted our cow/calf producers in the state. I think that happened because the packers were losing money, feedyards were losing money and they just kept prices depressed throughout the spring to try to get the prices back in line.”
But the price rally brought 700-750 pound calves to $139/cwt by July 8.
The outlook for availability and the price of corn is also positive, if you’re a cattle producer. Troxel said, “The number of acres of corn that was planted this spring was more than anticipated, so if all that corn crop comes to fruition and we have an average yield, we’ll have more corn this fall than we’ll know what to do with, and a lot of people are predicting corn prices down around $4/bl. We haven’t seen corn prices like that for many years, so with the cattle numbers down as low as they are – you know, the cowherd is down to the size it was back in the ’50s – we’ll just have plenty of corn this fall, if the corn crop is as successful as people are predicting. That’s got to be good for the cattle industry, so we’ll just have to wait and see.”
