Cattle Producers Could See a Break in Feed Costs

After years of rising corn and feed prices, livestock producers might get a reprieve if the upcoming USDA report corroborates what many expect: more corn planted this spring.

While fed cattle prices have been increasing, cattle feeders have been challenged with negative breakevens the last few years with not only higher feed costs, but higher feeder cattle prices. With the opportunity to lock in corn at between $5 and $6, that could help reduce breakevens. But volatility means that farmers and feeders will have to watch the market and take opportunities to lock in feed prices when available.

"The market is highly anticipating corn acreage will be adequate to build carryover for 2012-13, giving livestock producers opportunities to make more affordable feed purchases," says Pro Farmer's Julianne Johnston. "Of course the key is weather. Without a major weather threat, livestock producers will benefit from a larger corn acreage base in the coming year, but a weather threat would maintain a high level of price volatility."

The weather outlook shows warmer weather is here to stay, but the key is rainfall. While the overall outlook shows normal moisture conditions over much of the corn belt, there will be pockets of dry areas. That will be something to watch in the coming months. Rain or shine, though, this Friday's planting report will impact the market.

"The reports will influence corn and grain prices in both the near term and over the next year," says Darrel L. Good, Extension economist at the University of Illinois. "Those prices will influence the profitability of cattle currently being fed and may influence decisions about heifer retention and the timing of the re-building of the cow herd."

If cattle feeders begin showing positive returns, then those signals will trickle down to cow-calf producers to ramp up calf production to meet the demand of feedyards and packers in a time of shorter supplies.