Everyone's speculating that higher corn prices will fuel a drive to make cattle bigger on grass, with an end-result of fewer days on feed. The reasoning is quite simple -- cost of gain will be significantly cheaper in grazing programs than in the feedyard.
But the supply of feeder cattle hasn't changed. If one decreases days and accelerates the rate of turnover, then what already was an overcapacity situation in the feeding industry will increase. The result is there will be a need to import additional feeder cattle from Canada and Mexico, which will further stoke the whole trade debate.
It also likely means feedyards, which are battling to keep full, will actually add support to the calf and feeder market. The trend for a number of years has been to move cattle to the yard at lighter weights and then feed them longer. This trend enabled feedyards to behave as if they were in an expansion environment, despite numbers remaining constant (more days on feed and bigger outweights).
This year, the number of calves available to be placed is virtually unchanged, but the shift in placement weights (going higher) will have the effect of making inventories of placeable cattle appear smaller, even while numbers remain constant.
And while we're on the subject of corn prices, let's address some prevailing myths:
- Higher corn prices means lower cattle weights. There's some truth to this -- the incentive to produce fat will decrease, or there will be more of an economic incentive to identify that optimal body composition point where feed efficiency begins to rapidly decline.
However, pounds remain the primary economic driver in the cow-calf, feeding and packing industries. Fixed overhead costs need to be spread over as many pounds as possible. This changes dramatically if the cost of putting on that pound is less than what the pound is worth.
That said, there's still ample incentive to make cattle bigger if they're worth $90/cwt. and cost of gain (COG) is at $70. The winter storm has removed a lot of tonnage from the system, but the math isn't there to encourage lighter weights.
Certainly as COG approaches price levels, there's more incentive to market cattle at their proper biological endpoint, but it's incorrect to assume the incentive for pounds has changed.
- Higher corn prices benefit beef over poultry and pork. The logic of this argument is also sound. The reasoning is beef production only uses grain for half of its production cycle, while poultry and pork use corn for a much greater part of the life cycle. But beef production is at such a disadvantage in feed efficiency and feed conversion compared to poultry and pork that the relative changes in costs of production don't dramatically change the relative competitiveness between the proteins.
- Higher corn prices will drive a shift to grass-fed beef. Grass-fed beef is potentially a great niche market. However, the world prefers high-quality corn-fed beef, and that's where the U.S. beef industry has a competitive advantage.
Grass-fed beef from an industry standpoint isn't an option; it's neither price competitive nor the product of choice. A shift to a grass-fed program could be great for individual operations, but a disaster if the entire industry were to shift in that direction.