Using projected corn prices, feeding cost of gain was expected to decline to $114 per cwt in December from $142 in August, and then remain in the $103- to $112-per-cwt range for the first six months of 2024, said Purdue University Agricultural Economist Michael Langemeier, in a University release.
It is important to note than each $0.10-a-bushel change in corn price results in a change in feeding cost of gain of $0.96 per cwt, Langemeier said. Thus, it would not take a particularly wide swing in corn prices to change his projections.
KANSAS CORN PRICES DECLINING
Cash corn prices in Kansas were more than $7 a bushel in the first four months of 2023, peaking in February at $7.35, he said. The average August corn price, the latest month for which data was available from the USDA’s National Agricultural Statistics Service was $5.70 or 22% less than the February average.
Corn futures prices for 2024 currently range from $5.00 to $5.20 a bushel, Langemeier said. Thus, corn prices were expected to remain below the levels experienced in the last couple of years for the foreseeable future.
SENSITIVITY IN FEEDING COST OF GAIN
To determine the sensitivity of feeding cost of gain to changes in corn prices, alfalfa prices and feed conversion, a regression using data for the last 10 years was estimated, he said. Researchers found that each $0.10 increase in feed conversion increases feeding cost of gain by $1.33 per cwt; each $0.10-per-bushel increase in corn prices increases feeding cost of gain by $0.96 per cwt, and each $5-per-ton increase in alfalfa prices increases feeding cost of gain by $0.53 per cwt.
To more fully understand the effect of feed conversion, corn price and alfalfa price on feeding cost of gain, economists computed coefficients of separate determination, Langemeier said. These coefficients can be used to measure the influence of each independent variable upon the dependent variable.
Calculations found that 95.9% of the variation in feeding cost of gain was explained by fluctuations in feed conversions, corn prices and alfalfa prices, he said. Further computations found that corn price explained about 76% of the variation in feeding cost of gain.
Feeding cost of gain for the first six months of 2024 was expected to range from $103 to $112 per cwt, Langemeier said.
Is it possible for feeding cost of gain to drop below $100 per cwt?, he asked. The answer is yes, but this is not likely to occur unless corn prices this fall and winter drop below $4.50 a bushel.
This analysis strengthens the argument made above that corn price would need to drop below $4.50 for feeding cost of gain to fall below $100 per cwt, Langemeier said.
CATTLE, BEEF RECAP
The USDA reported formula and contract base prices for live FOB steers and heifers this week ranged from $182.83 per cwt to $187.00, compared with last week’s range of $182.00 to $185.26 per cwt. FOB dressed steers, and heifers went for $285.90 per cwt to $294.21, compared with $285.29 to $291.98.
The USDA choice cutout Thursday was up $0.26 per cwt at $304.12 while select was down $0.87 at $277.48. The choice/select spread widened to $26.64 from $25.51 with 143 loads of fabricated product and 22 loads of trimmings and grinds sold into the spot market.
The USDA said basis bids for corn from feeders in the Southern Plains were unchanged at $1.30 to $1.45 a bushel over the Dec corn contract, which settled at $5.05 a bushel, up $0.13.
No live cattle contracts were posted for delivery Thursday.
The CME Feeder Cattle Index for the seven days ended Wednesday was $244.83 per cwt, down $2.27. This compares with Thursday’s Oct contract settlement of $243.57, down $3.55.