As feedlots struggle with record losses on unhedged cattle, there is a candle at the end of the tunnel as some analysts foresee lower feed costs next year.
By some calculations, current feedlot losses are estimated at more than $500 a head. But relief may come their way slowly as feeder cattle prices already are declining slowly, and the stocks-to-use ratio may remain high enough to keep corn costs below $4 a bushel next year.
Writing for the Livestock Marketing Information Center’s weekly market comments, Mississippi State University Assistant Agricultural Extension Professor Brian Williams said the corn stocks-to-use ratio is one of the better indicators of corn prices.
“Typically, when stocks as a percent of total utilization exceed 10%, season average farm prices in the US fall below $4 per bushel,” Williams said.
The USDA’s November World Agricultural Supply and Demand Estimates report projected ending stocks around 1.76 billion bushels while total use is projected to be near 13.7 billion. This gives a stocks-to-use ratio around 12.9% going into the first quarter of next year.
With such a high stocks-to-use ratio, corn prices will be hard put to rise above $4 a bushel, and any test of this round-number barrier likely will be short-lived, Williams said.
2016 CORN PRODUCTION COULD RISE
The stocks-to-use ratio may remain high even in the second half of next year as corn production could even increase, given normal weather patterns, he said. And while estimates for 2016 corn production are mixed, an argument could be made for higher production next year.
Recent estimates of 2016 corn acreage have been mixed, but next year’s projections for corn profitability in Mississippi point to a profit of just under $120/acre for irrigated corn, while last year’s budgets projected a loss. Other state’s budgets typically show similar projections, so the numbers point to more acres being planted to corn next year than there were this year, which implies greater corn production.
Additionally, there is only limited potential for demand increases from other users. Ethanol production has plateaued as the industry hits the “blend wall,” a point where no more can be used as fuel without raising the normal blend ratios beyond 10%.
US corn exports also look to remain challenged by a strong US dollar and abundant supplies abroad.
There is the potential for increased feed use of corn next year, with the cattle herd being rebuilt and more calves being ready for their turn at the feed bunk. But even then, Williams said he sees overall increases in feed use to be small and a stocks-to-use ratio above 10% throughout next year.
PASTURE COSTS MAY HOLD
For cow/calf producers and stockers, a large part of their feed costs are in pasture rent costs. As cropland values have soared 200% to 300% in recent years, lower crop prices were expected to drop, too.
But pasture rents rise and fall with the value of cattle and are much slower to move. As cattle prices decline over the next years, pasture rent prices may slide as well, albeit at a much slower rate than cropland values.
Pasture rates next year may be similar to 2015 as many producers are locked into multi-year leases that were negotiated at the height of the cattle market. As these leases expire, pasture rental rates could decline as well.
CASH FED CATTLE MARKETS QUIET
No bids or offers were reported in the cash cattle market Monday. Prices last week were down about $3.00 per cwt to a range of $123 to $125, mostly $124 on a live basis. On a dressed basis, cattle traded at $190 to $192, down $3 to $5 from mostly $195 the week before.
Wholesale beef prices Monday were mixed. The USDA choice cutout was up $0.27 per cwt on the day at $202.87, and the select cutout was off $1.13 at $190.36. The choice/select spread widened to $12.51 from $11.11 on Friday, and there were 100 loads of fabricated product sold into the spot market.
The CME Feeder Cattle Index for the seven days ended Friday was $165.66 per cwt, down $2.74. This compares with the Jan settlement Monday of $156.45, down $3.00.