With feedyard losses already approaching $200 per head, Wednesday’s World Agricultural Supply and Demand Estimate (WASDE) report provided little hope for a quick turnaround. USDA said the drought will cut this year’s corn crop by 20 bushels per acre, and analysts noted that it was an unusual move for the National Agricultural Statistics Service (NASS) since the first field survey of crops will not occur until August.
This year’s corn crop production estimates were lowered to 12.970 billion bushels on 88.9 million harvested acres, an average of 146 bushels per acre, down from 166 last month. That’s down from 14.790 billion bushels estimated in the June report. USDA said, “Persistent and extreme June dryness across the central and eastern Corn Belt and extreme late June and early July heat from the central Plains to the Ohio River Valley have substantially lowered yield prospect across most of the major growing regions.” Along with a 903 million bushel carryover from the 2011 crop, the total supply will be 13.903 billion bushels.
The news likely had cattle feeders scrambling to readjust their ideas for the value of a feeder steer. Corn is already figuring in to rations at $7 per bushel, and nearly everyone expects it to go higher. That means feeder cattle will remain under pressure.
“A rule-of-thumb suggests that for every 50-cent increase in the price of a bushel of corn we should see a $2.50 per hundredweight decline in the price of feeder cattle,” says Sterling Marketing president John Nalivka. “For the last three weeks of June and the first week of July that rule-of-thumb was accurate.”
Going forward? “At some point the price of corn will ration demand,” Nalivka says. “We may soon reach a point where feeding wheat is an attractive alternative to corn, and in some cases it may already be more attractive.”
Nalivka, who provides the Sterling Beef Profit Tracker to Drovers/CattleNetwork each week, says $7 per bushel corn and 8-weight feeders at $140 per hundredweight produce a December breakeven at $128 per hundredweight for fed cattle. Reduce the price of the feeder steer to $135 per hundredweight and the breakeven drops to $125 for fed cattle in December.
“I believe we will be in that ball park,” Nalivka says of the late-year fed cattle market.
The price of feeder cattle has already come under pressure in recent weeks, but Nalivka notes there is a distinct premium for quality.
“Recent video sales suggest buyers are paying a significant premium for cattle that are weaned, preconditioned and all the bells and whistles.” Higher feed prices make cattle health and feedyard performance critical, he says.