Angus — The Business Breed


Sign up!

Quick links:

Connect with
our community:

Follow us on twitterJoin us on Twitter












Bookmark and Share

In the Cattle Markets

Feed cost outlook: Will this year’s record crop carry cattle producers through 2017?

Last week, Stephen Koontz of Colorado State University talked about the shift in the fundamentals of the cattle market from bearish to neutral. With production expected to be higher next year, we will likely see prices come down at least slightly, but the change in fundamentals suggest the bleeding has stopped. Despite the improving cattle market fundamentals, according to the latest projections from the Livestock Marketing Information Center (LMIC), cow-calf returns for 2016 will be negative for the first time since 2009.

This brings up something I have been talking to producers about for months: cost management. While a good marketing plan can help to a certain extent, opportunities to price cattle above the cost of production are going to be limited if nothing is done to manage costs.

Fortunately for the cattle industry, there should be many opportunities for lowering costs during the next year. Harvest is wrapped up for most corn producers across the United States, and all indications are that producers brought in a record corn crop. Yields topped 175 bushels (bu.) per acre nationally, and total production was greater than 15 billion bu. for the first time ever. With a stocks-to-use ratio of more than 16%, it is unlikely that we will see corn prices above $4.00 per bu. for any sustained period of time for at least the first half of 2017. With that being said, I do expect to see lower corn production and potentially higher corn disappearance next year.

We just published our 2017 crop planning budgets, and depending on the type of production system used, the net returns for corn and soybeans are similar. However, because soybean prices have fared better than corn prices over the past year, and factoring in the reduced risk due to the lower cost of production associated with soybeans, I fully expect to see fewer acres of corn planted in 2017. At the same time, the beef, poultry and swine industries are all expanding production, which means higher feed use. The Environmental Protection Agency (EPA) also recently announced an increase in the renewable fuels mandate, which will provide a small boost to ethanol production, will also increase demand for corn. The reduced production and expected increase in corn demand may provide a small boost to corn prices in the second half of 2017; however, barring any widespread natural disaster, the large stocks will likely limit any upward movement in corn prices. That is some much needed good news for the cattle industry.

Cow-calf producers are more heavily reliant on grass pasture as a primary feed source for a significant portion of the year. There has been some good news in 2016 on that front: pasture rental rates were down in 2016, and are expected to be even lower in 2017. In the Plains states, pasture rental rates were down about 1% in the first half of 2016, while pasture rents were down 2.2% in parts of the Corn Belt and Southeast. Mississippi saw an even sharper decrease in pasture rents, with nearly a 25% reduction in rental rates from 2015 to 2016. As more rental agreements are renegotiated this winter, and with cattle prices much lower than they have been during the last couple of years, I fully expect to see lower pasture rental rates again in 2017.

With lower grain prices and lower pasture rental rates, there are plenty of opportunities for producers to cut costs. Depending on the region, there are many other opportunities to cut costs, as well. For cattle producers through the Corn Belt, grazing corn residual may present a cheap alternative to feeding hay during the winter. In the Southeast, producers can graze cattle on winter forages, although such opportunities may be limited this year due to drought. In the Southern Plains, there is winter wheat pasture. There are many other alternatives that I have not mentioned; however, the most important thing that producers can do when weighing alternatives is to put pencil to paper. Understanding the costs associated with each alternative will help producers choose the best option for their own situation. Ultimately, it could mean the difference between making and losing money during periods of falling cattle prices.


comment on this story

Editor’s Note: Brian Williams is assistant extension professor for the Department of Agricultural Economics at Mississippi State University. This “In the Cattle Markets” column from the LMIC is reprinted with permission.



[Click here to go to the top of the page.]