"The era of cheap feed is probably over for years to come," says Chris Hurt, Purdue University Extension economist. In the Oct. 23 "Weekly Outlook," he explains, "Over the past eight crop years from 1998 to 2005, U.S. corn prices averaged just $2.05/bu. Historically, the cattle industry has been the animal segment that makes the biggest adjustments to high-priced feed, and that will likely be the case this time as well. The recent decline in calf prices represents a potential for $1.9 billion in lower annual returns for cow-calf operations. Excess capacity in feedlots will be costly as well. However, learning to feed distillers' grains at much higher inclusion rates remains the opportunity."
Similarly, Darrell Mark, University of Nebraska-Lincoln ag economist, offered this perspective Oct. 23: "In recent months, we've seen yearling placements decline relative to year-ago levels due to short supplies of heavier feeder cattle outside of feed yards (they were placed earlier in the year)."
He says the continued increase in lightweight calf placements in recent months are a result of at least three factors.
- Drought-stressed pastures in the Northern Plains and West likely prompted early weaning.
- Feeder-calf prices have declined at least 8% (basis Nebraska) in the past month due to softer fed-cattle prices and much higher corn prices. Given the outlook for fed-cattle and corn prices, feeder-cattle prices may not improve, so some producers are taking advantage of current prices that are still relatively good by selling calves now.
- Cattle feeders may be trying to take advantage of feedstuffs cheaper than corn in some local markets and that are more suitable for growing-calf rations than for finishing diets. For example, placements in South Dakota were up 25% in September. Hay prices are $50-$75/ton less than in Texas where placements dropped 10%.
Mark's complete comments are available at www.lmic.info/memberspublic/InTheCattleMarket.html. You can read more of Hurt's comments at www.farmdoc.uiuc.edu/marketing/weekly/html/102306.html.