BEEF Editors' Blog

Cattle, Corn Market Truisms Are…Well, True

The cattle market and the corn market will always win out in the end when it comes to market truisms. Even when an artificial market driver like subsidized ethanol enters in.

Market truisms, it appears, are still true. Like this one, for example—the best cure for high prices are high prices. If the numbers from one market analyst are true, and they probably are, corn farmers are fixing to learn that lesson in spades over the next few years.

Dan Basse, president of AgResources in Chicago, spoke recently at the Certified Angus Beef Feeding Quality Forum in Garden City, KS. Among the many pearls he unloaded into cattle feeders’ bag of jewels was his outlook for corn prices.

If you’re a corn farmer, stop reading now. It’s bloody. But remember, you did it to yourself.

If you’re a cattle feeder, you’ll want to do handsprings. Go ahead. It’s been a long time coming. Just try not to pull anything.

Some years ago, in an effort to move the corn market higher, corn farmers (and others) were successful in convincing the government to replace MTBE with ethanol as an oxygenate in gasoline. Almost overnight, at least in market terms, corn prices shot to levels that I suspect even surprised corn farmers.

And while the grain-ethanol complex saw wildly high profits in some cases, others in agriculture had decidedly different experiences. For them, Basse’s recent predictions come as welcome and long-overdue good news.

And in another time, another cattle cycle, you could say with a fair degree of accuracy that eventually, cattle producers will also “do it to themselves," in terms of overproducing and driving prices lower. Won’t happen this time, or if it does, it will be a very long time coming. Thanks to a variety of factors, ethanol among them, we must learn to deal with a permanently smaller cattle industry.

According to Basse, corn farmers are looking at a trifecta of bad news. The ethanol business has matured. So while it will continue to pull 4.6 to 5 billion bushels of corn off the market every year, ethanol usage and demand has stagnated and is projected to slowly decline in the years ahead.

What’s more, ethanol-fueled corn prices have encouraged every other country in the world to grow more corn. As a result, the U.S. share of the world grain trade has hit its lowest level ever, meaning U.S. corn farmers are fighting for their lives in the export market. And thanks to those same ethanol-fueled grain prices, the U.S. livestock sector is stagnant at best and in the case of beef, slowly declining. Corn demand there will be a long time coming back.

Now clearly, ethanol isn’t the only reason cow numbers are declining. But it’s certainly been a contributing factor the past six or seven years and has contributed to a permanently smaller beef cattle industry.

“These changes don’t happen very quickly,” Basse says. “This is what high corn prices have done for numerous years. So our firm has been hired by the likes of seed companies and fertilizer companies to decide who’s the lowest-cost corn producer in the world, because they want to know where to put their resources. And I can tell you, it’s not the U.S.”

In fact, Basse predicts a multi-year trend of weakening grain prices. “Actually we think the multi-year trend of weakening grain prices could last until 2016 or 2017.”

While he cautions that a 2017 timeline for grain price predictions is a long way out and that Mother Nature will have a lot to say about its accuracy, it is welcome news for all cattlemen, cattle feeders in particular.

“We think corn could go to $4.25 by harvest,” Basse said. “When was the last time you were able to buy $4 corn for cattle feeding purposes? It’s been a long time.” And it gets better (or worse, depending on your perspective). “I cannot rule out $3.00 to $3.50 corn a year from now, (fall 2014) if indeed Mother Nature is normal,” he says. “Ugly. Unless you’re feeding cattle.”

Interested in more market news? Subscribe to Cattle Market Weekly for the latest price trends every Saturday.

 

Corn farmers have enjoyed quite a ride the past six or seven years. But it appears the merry-go-round has ground to a stop.

So as corn farmers enter what appears to be a multi-year timeframe of lower corn prices, we will likely and predictably begin to read and hear any number of sad tales of farmers left holding overpriced farmland as prices tumble, overpriced machines as prices tumble and corn dumped on the market at less than cost of production. Since much of that land and machinery was paid for with cash, we won’t see a major shakeout like happened in the past.

You’re welcome. Some of that cash likely came from the estimated $7 billion in losses in the cattle industry over the last five years.

All that said, we will see a definite change in fortunes for many who hitched their wagon to ethanol’s rising star. As that plays out, here’s a word of advice—don’t look to cattle feeders for sympathy. ‘Cause it ain’t gonna happen.

 

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Discuss this Blog Entry 4

Anonymous (not verified)
on Sep 25, 2013

I guess you all survive on the hype and misfortune of others. I am a grain producer and also a beef producer. Just because corn prices are low dose not mean cattle prices will remain high! this has not been written in a book somewhere and is not gospel. and the land fertilizer and most notably the seed costs will have to be reduced, because at $350:00 a bag won't fly either. Now here this "Monsanto" we are not going to buy your expensive seed anymore either no matter what it yields it dose not pencil out. Maybe we the seed companies can get back to what they use to do breeding corn that works at a reasonable price If we are going to suffer so will everyone else. Why do you always have to exploit the us against them aspect of everything we need more positive thinking and more working together. I agree there are a lot of people who overdid a good thing with gain prices and still believe we will never o back to the old prices again, I heard that back in the 80's and I remember them pretty well. But how many 10-20000 ACRE farms do we really need? Lets get back to the reasonable sized farms that work and not pit neighbor against neighbor that is not the way it use to be.

Anonymous (not verified)
on Sep 25, 2013

Amen. I have grown up in a family that is also a grain producer and beef producer. We should most definitely think more positive and start working together. Blaming the grain industry for the beef industry's misfortune isn't going to help anything.

W.E. (not verified)
on Sep 25, 2013

Norms and conventions of the feedlot era are beginning to erode away, as are such industry truisms. One reason for the shortage in feedlot calves is the fact that, as corn prices rose, more and more cattle producers (meaning those of us who actually calve cows), began diverting more of their calves into grass-fed beef, which takes them off the beef-industry radar. As more consumers become disgusted with hormones, steroids, antibiotics, beta-agonists and other additives and treatments used to keep feedlot beef healthy and gaining as rapidly as possible, grass-finishers add those consumers who have dropped out of purchasing supermarket beef. Yes, this niche market is growing. Our small herd supplied grassfed beef to about 250 people over a twelve-month period--no thanks to the oblivious industry that would pay us as little as possible for our non-black cattle and then charge us a checkoff. Cattle with the right genetics don't need corn to make quality beef. They need only good forages grown on top-quality soil with a layer of rich humus (which the cattle themselves supply under the influence of management-intensive grazing and resting) and adequate rainfall. Soil, grass, fertility and rain are God-given, neither industry-controlled nor market-driven.

on Sep 26, 2013

well spoken "W.E." I grew up on a cow-calf operation and finishing beef on grain. upon me taking over the farm 4 years ago i ran numbers and realized i cant possibly compete in the industrial beef market when the feedlots are only making $4.00/ net profit per head.over the past 4 years i have transitioned to grass fed and ^ he is right with good genetics and high protein pastures it is possible.

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Joe Roybal

Joe is a native of South Dakota and a graduate of South Dakota State University with a degree in journalism. He worked as a daily newspaper reporter and photographer before doing a six-year stint...

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