While falling corn prices can’t hurt livestock owners, this is not your grandfather’s cattle market and lowered grain prices won’t have the same effect on today’s market that they would have even five years ago.
Shrinking cow herds, high calf prices, a growing range of feed options and uncertainties of the politics surrounding beef production will all play a role in how beef production will move forward.
Kansas State University Associate Professor of Economics, Glynn Tonsor, says eventual expansion of beef production is likely to be one change resulting from the lower prices. But it won’t happen overnight.
“Given the biological lag, expectations are that pork and poultry will expand in 2014 and 2015,” Tonsor says. “That’s especially true of the broiler market. Because of the time it takes to produce a calf, the beef market won’t benefit from expansion for two or three years.”
Rick Rasby, University of Nebraska-Lincoln professor and beef specialist, says current prices make it challenging for beef producers to retain the heifers necessary to implement herd expansion.
“Calf prices are so good right now it’s hard to think about rebuilding a herd when you can sell heifers for such a good price,” Rasby says. “Many producers are retaining enough heifers to maintain their herd. But betting on the long run that calf prices will remain high puts them in a challenging position.”
Rasby says the dynamics of today’s beef market have put livestock producers in the driver’s seat when it comes to pricing calves.
“With reduced inventories, we’ve built quite a bit of competition for calves into the market in the past couple of years,” Rasby says. “From a feedlot standpoint, feed costs will be lower, but calves are still expensive. Calf inventory is likely to remain low at least for a couple years, so calf costs will probably remain high through 2014 and 2015.”
Karla Jenkins, UNL cow-calf and range management specialist, says growing demand for dry distillers grains (DDGS) has caused recent prices for that feed source to remain somewhat higher than expected.
“Corn is about two-thirds starch,” Jenkins says. “During the distilling process, protein, fat, vitamins and minerals are concentrated when the starch is removed to make ethanol. That means a lot of good growth and energy is available in DDGs. The steady cost may not deter producers who have easy access to DDGs because of the feed value it provides.”
In areas where feeders don’t have access to DDGs, corn silage has met feed needs for those backgrounding calves.
“In areas where silage resources were plentiful, livestock feeders may turn to that feed source rather than purchasing corn, even though the price is down,” Jenkins says. “Shipping costs play a significant role in feed selection, too. Farmers who raised corn may decide, due to the lowered price, that it’s more cost effective to feed it rather than sell it.”
Jenkins notes that corn is a higher energy source than most forages, making it easier to put gain on calves. However, there are no negative impacts related to use of other feed sources instead of corn.
“There is some research that suggests young, lightweight calves that are exposed to corn at an early age have a predisposition for good marbling on a finishing diet,” Jenkins adds. “The biggest benefit of using corn in 2014 will probably be the reduced cost.”
Tonsor says a growing trend for farmers to specialize in crops or livestock will probably deter any producers who moved away from cattle to go back to raising them in light of reduced feed costs.
“That’s especially true if there’s no second generation to help with labor needs that go with livestock production,” Tonsor says. “Even with lower corn prices, it’s not economically feasible to subsidize livestock by growing corn or vice versa.”
Among the political issues influencing agriculture are the Environmental Protection Agency’s perspective on future requirements for Renewable Fuel Standards, which could negatively impact corn prices to a greater degree in 2014.
“This overriding environment of uncertainty on the regulatory and environmental front will cause beef producers to act cautiously before making changes to their operation,” Tonsor says. “There’s uncertainty about how the new farm bill will wash out and what will happen with COOL. It’s a long list of those kinds of things that will influence livestock owners, who tend to be conservative anyway. The uncertainty of all those issues will make them more hesitant to pull the trigger on expanding herds or making capital investments in their operation.”
While easing of drought conditions in many regions of the U.S. is giving livestock producers a reprieve on feed costs, Rasby points out that an additional caveat to the current livestock market is the loss of grassland to crops and continually rising costs of leasing pastures.
“Grazing used to be the cheapest way to run a cow,” Rasby says. “It’s not cheap right now. Beef producers need to continue finding ways to reduce input costs, and on the cow side of things, feed represents between 65 and 70 percent of the cost of maintaining a cow. Producers will want to keep exploring ways to use forage resources even though they’re more expensive.
“We’re at a different place in the cattle market than we’ve ever been before,” Rasby adds. “We need to keep looking into the future and stay informed about ever changing opportunities.” ❖