Speaking at last week’s Cattle Feeders Business Summit in Denver, Cattle Fax CEO Randy Blach provided numbers to illustrate what cattle feeders already know – high corn prices will keep feedyard breakevens at challenging levels for the coming year.
To estimate feedyard cost of gain, Cattle Fax uses a formula of corn price multiplied by .155. Thus, a $5 per bushel corn price equals $0.78 per pound cost of gain. A $7 corn price raises cost of gain to $1.09 per pound, $8 corn brings cost of gain to $1.24 and $9 corn would push cost of gain to $1.40 per pound.
If the corn price increases to $9 per bushel, feeders would need a $140-per-hundredweight market next April to break even on cattle placed this fall. Cattle Fax analysts believe, however, that corn priced around $8 per bushel will cause significant rationing from livestock and ethanol producers, keeping the price from rising much higher. Blach expects corn prices to generally range between $7.50 and $8.50 per bushel through the first quarter of 2013.
Since June 1, the run-up in corn prices has caused a $159 increase in the cost of feed for finishing a steer, a price reduction of $168 per head for 550-pound calves, $151 reduction for 750-pound yearlings, $107 per-head reduction for finished cattle and $147 per head reduction for utility cows.
Domestic cattle supplies meanwhile, continue to decline. Cow slaughter for 2012 has dropped off by about 300,000 head from last year’s high rate, but the U.S. cow herd is at its lowest level since 1958, and calf and feeder supplies are down sharply.
Higher steer and heifer slaughter weights have offset about 75 percent of the impact of the declining cow herd over the past 20 years, Blach says. The decline in cow slaughter has created a shortage of lean beef for grinding, and imports of Mexican cattle are up about 33 percent this year as a result.
U.S. per-capita beef supplies have actually increased to 57.8 pounds in 2012, from 57.3 pounds last year. Cattle Fax expects per-capita supplies to drop to 56.3 pounds in 2013 as production declines and exports pick up.
Those exports are critical to maintain fed-cattle values, he stresses. Beef exports, including hides and offal, currently account for $261 of the value of a finished animal. That compares with just $76 per head in 2004. We currently export about 14 percent of production, but Blach says that could increase to about 20 percent over the next five years.
Cattle and beef prices likely will trend upward in coming years, but Blach warns producers that higher prices do not necessarily correlate with higher profits. Volatility is likely in cattle, corn and energy markets, and the capital requirements for cattle feeding has increased by 50 to 60 percent over the past three years. These conditions increase the need for cattle feeders to keep a close watch on the price of feeder cattle and use risk-management tools to protect their margins.
The Cattle Feeders Business Summit was hosted by Merck Animal Health.