Continued volatility in the corn market will spill over into the feeder cattle market.
Brenda Boetel, an ag economist with the University of Wisconsin-River Falls, says feed costs play a huge role in feeder cattle prices.
“The corn price has typically had an inverse relationship to both fed and feeder cattle prices,” she writes in her “In the Cattle Markets” column. “This means as the price of corn increases, the price of feeder cattle decreases.
“This assumes that all other factors have remained constant, including other feeding costs as well as fed-cattle price.”
Boetel says that since the beginning of May, new crop corn prices have increased roughly 70 cents per bushel, sparked primarily by late planting and more prevented planting acres. The July 11 World Ag Supply and Demand Estimates reported the corn acres in June at 91.7 million acres. Corn stocks have also increased due to a decrease in exports.
“The market obviously isn’t believing the USDA data,” Boetel says. “On top of that disbelief, the July 15 crop progress report indicates corn is behind pace with only 17% silking, and only 58% is rated in good to excellent condition.
“The uncertainty of the crop progress tends to support prices, and noncommercials continue to be net long.”
Boetel points to a 2018 study where Wisconsin feeder cattle data was used to create price slides for beef and Holstein feeder cattle. The data suggest a shift in premium and discount rates.
“What is new is that the decrease in these beef steer price differentials is at an increasing rate as weight increases — for example, the premiums for lightweight cattle will decrease faster than has historically been found in economic studies,” Boetel says.
“Additionally, the 2018 study found that premiums (discounts) are greatest for lightweight (heavyweight) Holstein steers at low corn prices and price differentials lessen as corn prices increase. This means that at very high corn prices, heavyweight feeders bring premiums relative to lightweight feeders.”
Boetel says price volatility is likely to continue in both the corn and feeder cattle markets. She recommends producers pay close attention to any weather news, and to be ready to take advantage of any sort of positive pricing opportunity.