Higher corn prices are here to stay through the foreseeable future, says Cattle-Fax executive vice president Randy Blach, increasing the importance of the stocker segment and offering good opportunities for operators this year.
The industry, Blach says, has experienced a major transition over the past eight months, with higher grain prices driving the trend toward growing cattle bigger before placing them into feedlots. As of July 1, Cattle-Fax estimates cattle inventories outside of feedlots were up compared with last year, although the 2007 calf crop was slightly smaller than 2006.
Blach expects feedlots to place relatively high numbers of heavy yearlings during August, September and October, with feedyard inventories growing through the rest of the year. In southern feeding areas, without easy access to distillers’ grains, heavier yearlings are likely to make up the bulk of placements, while corn-belt feedlots located closer to ethanol plants will be able to place more calves. Nevertheless, he says, the stocker market will drive demand for calves this fall.
Since last fall’s jump in grain prices, a strong fed-cattle market has helped support calf and feeder prices in spite of higher cost of gain in the feedyard. There remains however, a direct relationship between corn prices and calf values, and calf prices will be proportionally lower this fall compared with heavier cattle.
Blach explains that from January through July, fed cattle have sold for about $95 per head more than one year earlier. During the same period, feeder cattle have brought about $35 per head less and five-weight calves about $55 per head less than last year. Corn prices, at about $1.68 per bushel higher than last year, mean about a $130 to $150 per head increase in feedyard cost of gain. So, add the $95 increase in the value of a fed steer to the $35 to $55 savings on the purchase price of feeder cattle and what do you have? That same $130 to $150 per head to account for higher feed costs.
The outlook for fed cattle is generally positive, with prices in the high $80s to high $90s per hundredweight likely into next year. Cost of gain in the feedyard will run from the $60s to about $80 per hundredweight, and as feedyards place cattle heavier and keep them for shorter periods, excess capacity will help motivate them to compete for supplies of replacement cattle.
Blach also says there is a growing opportunity for stocker operators to benefit from participation in verification programs. By linking with suppliers who can provide documentation for source, age and health practices for their calves, and feeding programs that value those assurances, stockers could capture significant premiums at sale time.