Cash fed cattle prices continue to make headlines this week with higher prices. Corn prices have also experienced a late winter rally, but so far that hasn’t dampened cattle profits.
With cattle and corn prices trading at new, higher levels, the combination has dramatically changed the steer-corn ratio, and that barometer may suggest some rocky times ahead for cattle feeders.
An old rule-of-thumb for cattlemen is “cheap corn, cheap cattle.” And the inverse of that seems true at the moment. As corn prices have risen, so have fed cattle prices. Wednesday’s cattle traded at $112 to $113 per hundredweight, and March corn prices were quoted at $7.14 per bushel. That recent cash cattle rally will boost the steer-corn ratio, but for most of the winter the ratio has not been in what is considered favorable territory.
Through December, January and February, the steer-corn ratio was 18.03, 17.7 and 16.4, respectively. Traditionally, cattle feeders like to see a steer-corn ratio over 20 as an indicator of favorable feeding conditions. The steer-corn ratio is the relationship of cattle prices to feeding costs. Simply stated, it is the number of bushels of corn it takes to equal the value of one-hundredweight of fed steer. This ratio divides the price of cattle ($/hundredweight) by the price of corn ($/bushel). Using this formula, a 1,000-pound steer worth $1 per pound and corn at $2 per bushel would yield a steer-corn ratio of 50. Raise the price of corn to $5 per bushel, and the steer-corn ratio drops to 20.
Therefore, with steers worth $113 per hundredweight and corn at $7.14, this week’s steer-corn ratio is 15.8, meaning, it takes 15.8 bushels of corn to equal the value of one hundredweight of fed steer.
Closeouts on cattle marketed this week will turn tidy profits. Most will exceed $150 per head. But the declining steer-corn ratio is an indication of profitability down the road on the next turn of cattle. Those coming in to the yards now will fatten eating that $7 corn.
Last October, when the cattle sold this week were first placed on feed, the steer corn ratio sat at 20.04. Rising corn prices are always a red flag for cattle feeders, but the four-month decline in the steer-corn ratio provides a solid benchmark to gauge what profitability may look like this summer.
Although the steer-corn ratio is not a favorite tool for market analysts, it can provide a snapshot of where the industry stands at any given point in time.