Dillon Feuz
In the Cattle Markets
The corn market affects the cattle market.
The October Crop Production Report released by the U.S. Department of Agriculture (USDA) Oct. 8 definitely affected the market. The report reduced expected corn yield by almost 7 bushels (bu.) per acre compared to the September report, and that was about 4 bu. lower than what most of the trade had expected.
USDA did "find" a few more acres and that, coupled with "finding" some additional stocks last week, was probably intended to temper the markets a little. However, it appears the trade put much more confidence in the lower yield numbers and not so much in the added acres or stocks from the previous week.
December corn futures were 30¢ higher Friday (Oct. 8), 27¢ cents higher Monday (Oct. 11), and another 23¢ higher Tuesday. December corn has essentially gone from $5.00 to $5.80 in three days. Many assume $6.00 corn is inevitable to ration what is now a very short expected ending stock for this crop of only 900 million bu. That is an ending stocks-to-use ratio of less than 7%.
Given that the ethanol industry is mandated to grow this year and next year, price will not be a rationing factor in that market. That means the feeding industry and exports will have to bear the brunt of rationing, and given the relatively short supply of feedgrains worldwide, don't expect exports to suffer much.
What that all means is, I believe, we will see higher corn prices and the cattle, hog, poultry and dairy industries will bear that higher cost. Projected feedlot cost of gain has risen from $75 per hundredweight (cwt.) of gain to $85 per cwt. If corn prices continue to rise, and if we get in another battle this winter/spring for corn vs. soybean acres, that rise could easily be well above $6 corn, then feedlot cost of gain will move into the range of $90 per cwt. plus.
Spring contracts for live cattle have also rallied after the release of the report, under the assumption that there will be fewer cattle placed on feed. However, I doubt that the present economy will support prices much higher or even the current levels. That would mean if corn continues higher, then feeder-cattle prices will likely decline further from the already discounted levels.
No ethanol apologist will convince me that that industry is not negatively affecting the livestock and dairy sectors and ultimately raising consumer food prices. You cannot inefficiently use one-third of the corn crop to run cars and not ultimately raise food prices. I am not opposed to ethanol — just government-mandated and -subsidized ethanol.