Cattle feeders need an ongoing understanding of the relationship between corn and Dried Distiller’s Grains in cattle rations and how the relationship affects profitability, said Brenda Boetel, agricultural economist at the University of Wisconsin, in a Livestock Marketing Information Center letter to Extension agents called In The Cattle Markets.
A LOOK AT PRICES
Corn price and Dry Distiller’s Grains tend to move in the same direction, Boetel said. There are years where this is the exception, including 2017 and 2020, but when examining weekly Kansas City corn price data and 10% Dry Distillers Grain price data from May 2006 to March 2022, the correlation between the two is 0.86, indicating Dried Distiller’s Grains and corn prices tend to move in the same direction.
A regression analysis using the data was conducted to find which price series indicated a relationship with Dried Distiller’s Grains, she said. Weekly high protein Kansas soybean meal price, Kansas corn prices, a weekly variable indicating seasonality and a variable indicating year were included in the analysis.
The model showing the best fit, with 81% of the Dried Distiller’s Grains price variability explained included all the variables, Boetel said. The results indicated that when the Kansas City corn price has a 1% change, the Kansas Dried Distiller’s Grains price will change by 0.77%.
Therefore, a $0.10 change in 2021 the Kansas City corn price per bushel resulted in a $1.82 change in Kansas Dried Distiller’s Grains price per short ton, Boetel said. These results are similar, although slightly less variable, to what Purdue University Agricultural Economist Michael Langemeier found using the Central Illinois prices.
LOOKING AHEAD
Looking forward into 2023 to determine Dried Distiller’s Grains prices requires using projected corn and soybean meal prices, she said. Using Chicago Board of Trade futures prices for 2023, corn prices will range from $6.25 to $7.00 a bushel, while soybean meal prices will be from $380 to $410 a ton.
Results from the regression model indicated that Kansas Dried Distiller’s Grains prices will range from $250 to $280 per ton, Boetel said.
Understanding how these price changes affect profitability requires an understanding of the displacement ratio between corn and Dried Distiller’s Grains, she said. There are large variations in these ratios, depending on location and complexity of diets.
For example, Kirk Klasing, animal scientist at US Davis, found that adding 30% Dried Distiller’s Grains in beef diets displaces about 24% of corn in the diet in the high plains but displaces only about 2% of corn in the west, Boetel said. How much the price variability affects profitability will depend on the least cost ration used.
CATTLE, BEEF RECAP
The USDA reported formula and contract base prices for live FOB steers and heifers this week ranged from $151.89 to $155.03 per cwt, compared with last week’s range of $150.11 to $153.77. FOB dressed steers, and heifers went for $235.92 to $239.81 per cwt, versus $234.01 to $242.86.
The USDA choice cutout Wednesday was down $1.27 per cwt at $257.09 while select was off $0.41 at $231.35. The choice/select spread narrowed to $25.74 from $26.60 with 149 loads of fabricated product and 20 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 $2.05 to $2.25 a bushel over the Dec futures and for southwest Kansas were steady at $1.00 over Dec, which settled at $6.65 1/4, down 1 1/2.
The CME Feeder Cattle Index for the seven days ended Tuesday was $174.98 per cwt down $0.20. This compares with Wednesday’s Nov contract settlement of $175.70, up $0.02.