Near-record corn crop will help cow-calf producers this year
Close to 3,500 calves moved through the sale ring at Herreid Livestock Auction (HLA) on October 30, and cow-calf producers are in a good spot this year as they sell their calf crop, says J.R. Scott, HLA Field Rep.
“While everyone would love to see prices at the same levels as 2014, folks are still optimistic about the fact that this will be the second-highest year on record for calves,” said Scott.
A quick snapshot of current prices at press time, Scott says 400 pound steers are bringing $260-275/cwt; 500 pound steers are $220-240/cwt; and 600 pound steers are $205-220, respectively.
“We are just getting started on our fall calf run at the sale barn, and our peak will be in November and December,” he said. “Things are pretty good for the cow-calf guy right now, so it’s going to be a pretty exciting fall run.”
One factor that is playing into the decision of the cow-calf operator of how long to hold his weaned calves is corn, and the overall abundance of grain that’s at his disposal now that the 2015 corn harvest is winding down.
According to the USDA National Agricultural Statistics Service (NASS), “Corn production is forecast at 13.6 billion bushels, down 4 percent from last year’s record production and down less than 1 percent from the August forecast. Based on conditions as of September 1, yields are expected to average 167.5 bushels per acre, down 1.3 bushels from the August forecast and down 3.5 bushels from 2014. If realized, this will be the second highest yield and third largest production on record for the United States. Area harvested for grain is forecast at 81.1 million acres, unchanged from the August forecast but down 2 percent from 2014.”
So what does this abundant harvested corn crop mean for both farmers and ranchers? Matthew Diersen, South Dakota State University Extension risk/ business management specialist, offers his thoughts on a record corn crop and how it might relate to beef producers.
“If we look at South Dakota, the state had slightly fewer acres of corn this year than last year but still maintained super high yields to get to a level comparable to the last three years,” said Diersen. “The number of bushels harvested is phenomenal throughout the entire state of South Dakota, which means we have a large number of potential buyers with easy access to corn as feed from across the state. Anybody with a backgrounding yard or feedlot also has a ready available supply of corn, which could translate to higher bids for feeder calves at auction. It’s good news all around.”
For farmers selling corn, Diersen said the current prices are higher this year than last year at this time.
“Even with a higher level of production and high yields, the price is up from last year, so the corn farmer is going to be better off in 2015,” said Diersen. “However, higher corn prices might result in a little bit lower calf prices, but we need to look at more than just the price of corn when we’re looking at the feedlot costs.”
Looking at other feedstuffs, Diersen said hay is plentiful and the price is generally lower now compared to prices from the fall of 2014.
“The lower hay price will more than offset the price of corn this year, which is expected to be higher in March than it will be in December, and higher in May than it will be in March,” said Diersen. “In addition to hay, corn stalks and distillers are also easily accessible this time of year, which will also be good for beef producers. With the abundance of feed available, you have the incentive to do some feeding where maybe in other years, you wouldn’t. There isn’t unusual profits to be had by feeding calves, but all indications show there will be plenty of demand for buyers in the region.”
“With the high yields farmers in the area had in this year’s corn harvest, there’s definitely a lot of feed sitting around,” added Scott. “There’s also plenty of hay and silage available, so this will definitely add to the demand of calves this fall and get bidders in the seats.”
A look at the futures market shows December corn prices at $3.80/bushel and July 2016 is just under $4/bushel, said Diersen.
“There’s carry in the futures market,” he said. “Feeders will need to push the pencil a little bit to figure out how much feed they’ll need and if it makes sense for the feeder to store it or someone else to store it for now. If you’re going to need feed, and you’re not struggling for cash, there’s probably enough carry to justify laying some in verses waiting to buy corn later. Of course, the price could change, so that’s a consideration.”
“We are seeing more cow-calf producers who typically sell off the cow background their weaned calves for awhile to try to get some value out of the available corn,” added Scott. “It makes more sense to add dollars by putting the corn in the feed bunk verses hauling it to town to the elevator.”
Diersen said 2016 is looking to be positive for cow-calf producers, and even though some are disappointed that 2015 is shaping up to reach the record high prices of 2014, producers will still see profits in 2015 and 2016.
“Don’t forget we are in a cattle cycle, so you wouldn’t expect prices next year to be higher than this year,” he said. “However, there is little to suggest that the price has to go back down to levels from five years ago. Based on longer run costs, things should still be profitable for cow-calf producers in 2016, which should encourage expansion.”
While expansion levels aren’t high enough to impact the market yet, Diersen said the trend of retaining heifers continues to grow, so there will be fewer heifers in the feedlot once again this year. Yet, despite expansion, beef production levels are trending upward.
“Many cow-calf producers I’ve visited with have plans to feed more replacement heifers and cull cows longer with the feedstuffs they have from this year’s harvest,” said Scott. “It all goes back to the basics of how to market your grain or silage a little smarter.”
According to USDA’s Economic Research Service, “2015 beef production will reach about 23.8 billion pounds. Higher cattle slaughter levels, in conjunction with heavy carcass weights, are expected to increase beef production in 2016. USDA’s current forecast for total beef production next year is nearly 25.0 billion pounds, up 5 percent relative to 2015.”
With harvest winding down, cattle feeders can take advantage of the bumper crop by accessing the abundance of local corn and feedstuffs currently available. With corn to feed, cow-calf producers can also add value by backgrounding calves longer and can feel confident knowing there will be bidders in the stands wanting to fill their yards with feeder cattle
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I want to address a couple of issues in this week’s editor’s note.