Cattlemen can no longer rely on the old rule of thumb that a 10 cent changes in the price of a bushel of corn pushed feeder cattle $1 in the opposite direction.
That old rule of thumb about a 10¢ change in the price of a bushel of corn pushing feeder cattle $1 in the opposite direction has gone by the wayside, says Dillon Feuz, Utah State University ag economist, in a recent In the Cattle Markets.
Feuz ran the numbers (see chart below), looking at monthly feeder-cattle prices from Kansas, Montana and Nebraska in 2002 through 2011. He broke the data into two, five-year periods: 2002-2006 and 2007-2011. He used the current nearby corn futures for each month and the live-cattle futures 4-8 months out as the expected fed-cattle price, depending on feeder cattle weight.
A $1/bu. increase in corn leads to the following decrease in the price of feeder steers in $/cwt.
|550 lbs.||650 lbs.||750 lbs.||850 lbs.|
"Clearly the old rule no longer applies," Feuz says. "A 10¢ increase in the price of corn now only results in about a 35¢/cwt. decrease in heavier feeder-cattle prices and even has less of an impact on 5-weight feeders. I don't know if this is all due to higher and more volatile corn prices or if it is due to the relatively short supply of feeder cattle relative to feedlot capacity. What I do know is that the relationship has changed."