There is no relief in sight for high feed costs, said Matthew Diersen, risk and Business management specialist at South Dakota State University in a letter to Extension agents from the Livestock Marketing Information Center called In The Cattle Markets.
STORAGE & INTEREST COSTS
With higher interest rates, the cost of storage becomes a larger concern, Diersen said. There is very little carry in corn futures, suggesting that going hand-to-mouth for feed needs could be considered if feeders can ensure they can secure supplies later.
Northern Plains corn yields are not great, but production levels and old-crop stocks suggest securing feed later in the marketing year may not be an issue, although the price may not be attractive, he said. For those looking for price protection, the implied volatility in the corn market remains in normal ranges despite the higher price levels.
Thus, end users may consider buying a call option to protect from further price increases, Diersen said.
Higher prices should result in lower slaughter weights or fewer animals slaughtered at very heavy weights, he said. However, prices have been high on the cash side for a long time, so feed prices are not being reflected in weights.
A price shock was observed in feeder cattle futures, which fell as corn increased, Diersen said. In the latest WASDE report, there was very little feed use adjustment even though the corn price was high. The market continues to act hungry for corn, which limits the carryout.
DON’T FORGET HAY
The other prominent feed is hay, he said. In the October Crop Production report, production was revised sharply lower than in August, he said. Grass hay production was much lower than in 2021 from South Dakota to Texas.
At the national level, old-crop hay stocks were a modest 16.8 million short tons on May 1, Diersen said. The 2022 production of 112.0 million tons gives a supply of 128.8 million, the lowest for both since the 1950s.
Very severe price rationing suggests fall hay use of 56.6 million tons and Dec. 1 stocks of 72.2 million tons – levels not seen in decades, he said.
A slightly softening of fuel costs could help mitigate the most extreme price differences, but the general price level will remain high until supplies can improve, Diersen said.
The higher US dollar would have a slight dampening effect on the hay situation, he said. The US is a net exporter of hay, and while the stronger dollar would make US hay less attractive in the global market, there are few economical sources for imported hay for US feed consumption, he said.
CATTLE, BEEF RECAP
The USDA reported formula and contract base prices for live FOB steers and heifers this week ranged from $148.87 to $151.53 per cwt, compared with last week’s range of $143.40 to $149.70. FOB dressed steers, and heifers went for $229.12 to $239.18 per cwt, versus $227.15 to $232.51.
The USDA choice cutout Tuesday was up $3.51 per cwt at $261.43 while select was up $1.74 at $227.35. The choice/select spread widened to $34.08 from $32.31 with 121 loads of fabricated product and 28 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 $2.20 to $2.30 a bushel over the Dec futures and for southwest Kansas were steady at $1.00 over Dec, which settled at $6.86 1/4, up 4 3/4.
Six steer contracts were tendered for delivery Tuesday.
The CME Feeder Cattle Index for the seven days ended Monday was $174.85 per cwt up $1.23. This compares with Tuesday’s Oct contract settlement of $176.60, up $0.92, and Nov’s $177.92, down $1.22.