Fed and feeder cattle markets are feeling the support from lower corn prices, and any continued weakness in feed costs can be expected to provide even greater cattle market support, said Josh Maples, agricultural economist at Mississippi State University, in an article in “In The Cattle Markets.”
Fed and feeder cattle cash markets are paying attention to a variety of factors, and it’s impossible to disentangle them to discern how much effect each input has on the total market, Maples said. However, further study may shed some light on what should be happening with one variable, corn costs.
“While feeder prices have been on an uptrend over the past month, it can’t be simply attributed to lower corn prices alone,” he said. “However, we know that cattle prices are certainly paying attention to the corn market….”
CORN PRICES IN DOWNTREND
Corn futures prices have been in a sharp downtrend since late May, primarily because of a combination of trade uncertainty and a strong start to the growing season, Maples said.
That is seen in this graph of the Jul futures contract from TradingCharts.com.
Nearby and new-crop corn futures prices have tumbled by more than $0.40 a bushel, or about 10%, he said. The Dec contract price hit $4.26 on May 23, its highest level since July 2018, but just 18 trading days later, it closed Monday at a contract low of $3.77.
PRICE RELATIONSHIP TO CATTLE
The price of corn is assumed to have an inverse relationship with feeder cattle prices, Maples said. This relationship assumes that all other price-affecting factors, like the price of fed cattle, remain constant.
That relationship exists because corn (feed) and feeder cattle are the two major inputs into the production of fed cattle, he said. As corn prices decline, the price of the other input (feeder cattle) can increase without increasing the total cost to produce an animal.
Maples referred to a 2017 study by Glynn Tonsor and Emily Mollohan, agricultural economists at Kansas State University, highlighted that relationship and estimated the effect that a change in corn price has on feeder cattle prices. Using monthly data the K-State economists found that a 1% increase in corn price reduces feeder cattle prices by about 0.18%.
Further, they found that feeder prices have become more responsive to corn prices since 2008. The effect of live cattle price expectations on feeder cattle prices also is three or more times larger than the same effect of corn price.
So what might a 10% decline in corn prices imply for feeder cattle prices? Maples asked. It would suggest a 1.8% increase in feeder cattle prices.
That means a decline from $4.00 a bushel for corn to $3.60 would suggest a feeder price increase from $150 per cwt to $152.70.
CATTLE, BEEF RECAP
Eleven hundred head of Nebraska cattle sold Wednesday on the Livestock Exchange Video Auction at $110 per cwt, steady with the last sales three weeks earlier.
Limited cash trade was reported last Wednesday at $180 per cwt on a dressed basis, down $4 from the previous week. Live-basis cash action was seen at $108 to mostly $109 to $110, down $1 to $3.
The USDA choice cutout Monday was up $0.53 per cwt at $217.69, while select was off $0.13 at $201.89. The choice/select spread widened to $15.80 from $15.14 with 79 loads of fabricated product sold into the spot market.
The CME Feeder Cattle index for the seven days ended Friday, was $142.28 per cwt, down $0.29. This compares with Monday’s Aug settlement of $145.77, down $3.42.