The US corn market will continue to be volatile, with any weather news affecting prices, but understanding how changing corn price affects feeder cattle prices can aid in management and marketing decisions.
That came from Brenda Boetel, agricultural economist at the University of Wisconsin, in a letter to Extension agents from the Livestock Marketing Information Center called In The Cattle Markets.
CORN, FEEDER PRICES HAVE INVERSE RELATIONSHIP
Feeder cattle prices are determined by several factors, with feed and fed-cattle prices having the greatest effect, Boetel said. In fact, corn prices typically have had an inverse relationship to fed-cattle prices, as well as feeder cattle prices.
That means, as the price of corn increases, the price of feeder cattle decreases, she said. This assumes all other factors have remained constant, including other feeding costs as well as fed-cattle prices.
Since the beginning of May, new crop corn prices have increased about $0.70 a bushel amid a late planting season and concerns over the number of acres that were prevented from being planted, Boetel said. Reports from the USDA highlighting fundamental corn data on planting, yield and storage would indicate that corn prices should be decreasing.
The July 11 World Agricultural Supply and Demand Estimates reported the corn acreage at the June estimate of 91.7 million acres, she said. Additionally, old crop stocks increased due to a reduction in export estimates.
DISBELIEF, DELAYED PROGRESS HARASS MARKETS
The market obviously isn’t believing the USDA data, Boetel said. On top of this disbelief, Monday’s USDA crop progress report indicated corn was behind pace with only 17% silking and only 58% rated in good to excellent condition.
The uncertainty of the crop progress tends to support prices, and noncommercials continue to be net long, she said. Although prices dropped this week, they may continue to move upward until the new planting expectation data is released in August.
CATTLE PRICE EFFECT
What does that mean for cattle prices? One way to see how sensitive feeder cattle prices are across all weights is to look at price slides where only the price of corn changes, Boetel said.
A 2018 study in Western Economics Forum by Schulz and Boetel utilized Wisconsin feeder cattle data to create price slides for beef and Holstein feeder cattle. The data used in the study indicates that premiums or discounts for lightweight or heavyweight beef steers are lower at high corn prices.
That isn’t a new finding, she said. However, what is new is that the decrease in beef steer price differentials is at an increasing rate as weight increases, i.e., the premiums for lightweight cattle will decrease faster than has historically been found in economic studies.
Additionally, the study found that premiums and discounts were greatest for lightweight or heavyweight Holstein steers at low corn prices, and price differentials lessen as corn prices increase. This means that at very high corn prices, heavyweight feeders bring premiums relative to lightweight feeders.
CATTLE, BEEF RECAP
Cash cattle traded in the Plains this week at $111 to $114.50 per cwt on a live basis, steady to down $0.50 from last week. Dressed-basis trading was reported at a steady $182 to $185.
The USDA choice cutout Thursday was up $0.77 per cwt at $213.34, while select was up $0.27 at $188.61. The choice/select spread widened to $24.73 from $24.23 with 99 loads of fabricated product sold into the spot market.
The CME Feeder Cattle index for the seven days ended Wednesday was $140.00 per cwt, down $1.01 from the previous day. This compares with Thursday’s Aug contract settlement of $139.42, down $1.15.