Farm News, IA
01-10-07
Grains pressure cattle market
By Kristin Danley-Greiner, Farm News staff
Feedlot replacement cattle are selling for less as the industry tries to balance the
effects of higher corn prices.
Rising corn prices have dramatically weakened feeder cattle prices and for the
first time in more than two years, feedlot replacements are cheaper than the
inventory.
John Lawrence, a livestock economist at Iowa State University, reported late
last month that feeder cattle prices could move even lower if corn prices continue
to rise, which is a possibility, considering that more corn acres are being sought
for this coming growing season.
“Feedlots are selling cattle at a loss and prices are expected to remain below
breakeven for most cattle sold through the spring. The late summer $120
yearlings and $3 corn are producing breakevens in the mid $90s for fed cattle
this winter. February and April futures are currently near $90 before adjusting for
basis,î” Lawrence said in a market report.
The winter market could be pressured even further if feedlots begin to more
aggressively market in order to cut their losses on heavy cattle with a high cost of
gain and instead buy lower priced feeders.
“I do not anticipate a market collapse like we saw in 1996, but it is possible that
fed prices could be considerably weaker if marketings exceed demand going into
the spring. The large feedlot inventories and heavy carcasses increase that
probability,î” Lawrence said. “Feedlot losses will pressure feeder cattle as well.
Short of this ‘dooms day’ scenario, I look for fed cattle prices to average in the
mid-to-upper $80s through early 2007, and that should support yearling steers in
the upper $90s with corn in the low $3 range.î”
Dennis DeWitt, cattle field specialist with Iowa State University Extension based
out of Spirit Lake, works closely with producers and said that both feedlots and
cow-calf operators currently are waiting to see where corn prices stabilize.
“We’ve seen drastic drops in prices for both, but they’ve stabilized since corn’s a
little steeper in price,”î DeWitt told Farm News. “We’re in a status quo-waiting
game to see what’s going to happen. The cost of gain has gone up drastically
with the increased corn prices and I’ve been going to cow markets and the cow
prices are literally all over the board. It’s a real volatile market right now.î”
According to the December cattle on feed report released by the U.S.
Department of Agriculture at the end of December, the number of cattle placed
on feed in November was down 8 percent from the previous year. Beef demand
at the consumer level for January through November also was down, between
two and three percent, said Glenn Grimes and Ron Plain with the University of
Missouri-Columbia in their Dec. 29 market report.
Fortunately for feedlots, the futures market is anticipating a strong summer
market, Lawrence said, based partly upon early placement of feeders last
summer.
“We may have to experience the spring sell-off to get numbers and weights low
enough to support those prices. Rationing of fed cattle marketings through the
winter to support that market may lead to a backlog of cattle in the summer,î”
Lawrence concluded.
DeWitt said feedlot operators in particular will be cautious and buy livestock only
when they see a dip in the market.
“We’ll probably be seeing fewer cows available for sale for breeding purposes
than we have in the past months,”î DeWitt said. “They’re pretty well established
and right now, everyone’s playing the waiting game. Once we get a little direction
in where livestock feeding prices and where the futures markets are for meat,
some may end up cautiously replacing and increasing cow numbers when they
feel prices will work for them.î”
There are plans for new feedlots and feedlot expansion projects in northwestern
and northern Iowa, and DeWitt said that the expansion projects likely will proceed
despite the current market prices, albeit with caution.
“The margins are narrower and they will take more care in pushing the calculator
or computer program to determine a bit better what their expectations for the long
run will be,î” he said. “Their plans are already in place, but they may not be as
large as they previously thought. But if they’re already made that commitment,
they’ll probably go right ahead.”î
Chris Hurt, a livestock economist with Purdue University, said for 2007, beef
production is expected to be up approximately 2 percent in the first half of the
year. First-quarter choice steer prices are expected to average in the lower $90s
with second quarter prices in the $84 to $88 range, Hurt noted in a market report.
“Feeder cattle and calf prices may feel some downward price pressure in 2007
with higher feed costs and modestly higher interest rates,Ӕ he said.