This week, I received a phone call from a bright young lady preparing a speech for an upcoming national heifer show and competition. Her speech centered on the impacts of rising energy and corn prices. One of the questions she asked me was, with there being no indication of any reprieve on the corn- or energy-price fronts, is what should a cow-calf producer do in the short term to deal with this negative business environment?
It’s a great question, and I’d love to hear what all you readers are doing differently in your operations to combat this. I think that in the long term, we’ll liquidate cows and, as we decrease the size of our industry, prices will stabilize and a new equilibrium will be established. The future, in fact, looks extremely bright, but we know that margins will narrow in the short term.
Previously I’ve advised doing everything possible to lower costs and ensure that you’re one of the low-cost producers; to place even more importance on having cows harvest their own forage; and to adjust management schemes to minimize the amount of harvested feed that’s fed. I’ve also mentioned that, in times of narrow or negative margins, putting more emphasis on marketing of one's cattle makes sense.
Since most of the rise in commodity prices can be attributed to speculation, poor fiscal and monetary policies, and decisions that have been made on our behalf in Washington, D.C., it also makes sense to ensure your voice is heard in the halls of Congress. After all, that’s where the problem was created, and likely from where the fix will come.
The good news is that fed-cattle prices will rise. This week, we saw the October live fed-cattle contract trading above $110/cwt. That’s a price level never before seen on the fed cattle side.
Incidentally, VeraSun Energy announced this week a delaying in the opening of its new ethanol plant in Welcome, MN. This is significant, as the plant was near completion. The move signals just how tight margins are becoming for the ethanol industry with corn prices rising above the $7/bu. level.
Interestingly, corn prices aside, one of the biggest problems for ethanol plants is the higher cost of energy, which have hurt these plants’ margins. In fact, ethanol production is expected to fall short of the 10-billion-gal. estimate for the year, as industry losses force curtailed production.