Can Livestock Eat $6 Corn?
Exceptionally strong exports have been garnering headlines, but livestock remain major consumers of U.S. feed grains and soybean meal. Increasing dairy and livestock prices, combined with reduced feed cost, eased financial pain following the feed price explosion in 2008. Now margins are tightening again. Can U.S. livestock stomach $6 corn?
The Consensus Is Yes. “Prospects are not as bad as you might think. Fortunately, the outlook for all commodities is pretty bullish, including livestock,” says Dan Basse of AgResource. “Freezer stocks of beef and pork are at very low levels and export prospects are good. We are projecting pork and beef prices at record levels in the second quarter, with hogs at $90 to $96 per cwt. and cattle, $108 to $110 per cwt. At $6.50 or $7, livestock producers might see some losses but it will not be as bad as in some past cycles.”
Steve Kay of Cattle Buyers Weekly agrees, though he characterizes the relationship between corn and live cattle as somewhat challenging for cattle feeders because it appears the feeder cattle price won’t weaken. The cattle industry lost $6 billion in equity during the 18 months following corn’s price surge. “We’ve seen an almost unprecedented lack of expansion,” Kay says. “Now liquidation is under way. Analysts expect the Jan. 1 total herd to be between 92.2 million and 92.5 million head.”
He adds: “It’s inevitable the cost of grain will go up. It’s already $85 per cwt., up from $75 before this corn price rally. If corn is over $6 per bushel, it will move to $90. With other costs, it is imperative that prices for cattle on feed exceed $100 and that spring marketings are a little higher.
“What is different is that the rule of thumb—that for every 10¢ corn rise, feeder cattle falls $4.50—hasn’t happened. The historically low supply of calves outside feedyards on Oct. 1 kept feeder cattle prices firm.”
Consumers Pay More. “Continued liquidation or even unchanged cattle and hog numbers will lead to sticker shock for consumers next year,” says Chris Hurt, Purdue University economist. “With corn around $5.50 per bushel, we project retail beef will reach about $4.65 per pound.”
Of course, it’s all about supply and demand, says Scott Brown, University of Missouri livestock economist. “Given the macroeconomic outlook, it appears international consumers will battle domestic consumers for our restricted meat supply. That’s positive for prices.”
Top Producer, December 2010
