Cattle producers were urged this week to take action now to pay particular attention to next year’s feed costs, since doing nothing could leave them with few chances to market cattle at a profit.
Brian Williams, agricultural economist at Mississippi State University, said in in outlook report that despite improving cattle market fundamentals, the Livestock Marketing Information Center’s latest projections show cow/calf returns for 2016 will be negative for the first time since 2009. This makes it doubly important for the whole industry to manage costs next year.
Fortunately, there should be many opportunities to do that, Williams said.
THE CORN CROP
The corn harvest is just about wrapped up, and all indications are that producers brought in a record crop, he said. National yields topped 175 bushels an acre, and total production topped 15 billion bushels for the first time ever.
With a stocks-to-use ratio of more than 16%, it is unlikely that corn prices will get above $4.00 a bushel for any sustained period of time, at least for the first half of 2017, Williams said. However, he did expect lower corn production and potentially higher corn disappearance next year.
Depending on the type of production system, 2017 projected net returns for corn and soybeans are similar he said. But because soybean prices have fared better than corn prices over the past year, and factoring in the reduced risk from the lower cost of production associated with soybeans, he said he expected 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, Williams said. The Environmental Protection Agency also increased the renewable fuels mandate, which will provide a small boost to ethanol production and corn demand.
The reduced production and expected increase in demand may provide a small boost to corn prices in the second half of 2017 he said, but barring any widespread natural disaster, the large stocks will likely limit upward price movement.
WHAT ABOUT PASTURE?
Cow-calf producers are more heavily reliant on pasture as a primary feed source, Williams said. Pasture rental rates were down in 2016 and were expected to follow the trend lower in 2017.
In the Plains, pasture rent was down about 1% in the first half, while rent was down 2.2% in parts of the Corn Belt and Southeast, he said.
For producers in the Corn Belt, grazing corn residual may present a cheap alternative to feeding hay over the winter, Williams said.
In the Southeast, producers can use winter forages, although such opportunities may be limited this year by drought.
In the Southern Plains, there is winter wheat pasture.
Understanding the costs associated with each alternative will help producers choose their best cost-cutting option, which could mean the difference between making and losing money during periods of falling cattle prices, Williams said.
CASH CATTLE TRADE HIGHER
Average Superior auction prices Wednesday were $2.21 per cwt higher at $112.68, versus $110.47 a week earlier. Cash cattle then traded at $113.25 to $114 on a live basis, up $2.50 to $3.25. Dressed-basis trading was up about $4 at $174.
Thursday, cattle traded at $114 to mostly $115 to $116 live and at $180 dressed.
The USDA’s choice cutout Thursday was $0.36 per cwt higher at $197.61, while select was up $0.27 at $186.17. The choice/select spread widened to $11.44 from $11.35 with 76 loads of fabricated product sold into the spot market.
The CME Feeder Cattle Index for the seven days ended Wednesday was $132.08 per cwt, up $0.04. This compares with Thursday’s Jan settlement at $131.12, up $0.90.