A look at corn and feeder calf prices

FARGO, N.D. – Corn and feeder cattle markets have been volatile in the last several months as market fundamentals for both have been changing.
Fall 2006 feeder calf prices will be impacted by changing corn prices because after the cost of the calf, feed prices are the second greatest input cost in cattle feeding.
A rule of thumb for cow-calf producers to watch this summer is that a 10-cent-per-bushel change in corn prices can cause a $1-per-hundredweight change in the opposite direction in fall feeder calf prices. This assumes other fundamental factors will hold constant, which likely won’t happen. Changing interest rates, energy costs and fed-steer prices also will be important drivers of calf prices.
But let’s focus just on corn prices for this article.
Look back. Last summer, from July to October, corn prices declined about 60 cents per bushel and 550- to 600-pound feeder steer prices in the northern Plains increased contra-seasonally (they usually decline during this time period) by $6 per hundredweight. So, the rule of thumb was a good one to follow last summer.
In 2006, corn prices generally have been increasing and feeder calf prices declining.
What is happening in the corn market?
Corn prices have been historically low the last two years because of a record 11.8 billion bushel crop in 2004 and the second largest corn crop ever in 2005 at 11.1 billion bushels.
Reduced acres. The USDA National Agricultural Statistics Service’s Prospective Plantings report released March 31 indicated producers plan to reduce planted corn acres by 3.8 million acres. Rising prices since that report and favorable planting conditions may cause producers to plant more acres than earlier indicated. However, high fuel and fertilizer prices likely will cause lower planted corn acres than in the last several years.
The USDA’s monthly World Agricultural Supply and Demand Estimates report released May 12 predicted the 2006 corn crop at 10.55 billion bushels, which is 5 percent less than in 2005. Corn usage during 2006 and 2007 is projected to be up about 6 percent, due largely to increased ethanol usage. Projected ending stocks of corn at 1.1 billion bushels would be about half of this year’s 2.2 billion bushel level.
The USDA is predicting the average 2006-2007 marketing year price of corn at $2.25 to $2.65 per bushel, which is 30-60 cents per bushel higher than this year.
Volatile. December 2006 corn futures prices that had been trading around $2.70 per bushel increased to more than $2.80 per bushel after the release of the USDA’s report. Corn prices likely will continue to be volatile as news about the potential size and utilization of the crop materializes.
Feeder calf prices will be impacted by higher corn prices and cyclically increasing numbers. Fall prices likely will ratchet down to 2004 levels if beef trade resumes with major Pacific Rim countries.
If the corn crop encounters weather problems and prices move higher, calf prices likely will move even lower.
(Tim Petry is a livestock marketing economist and George Flaskerud is a crops economist with the North Dakota State University extension service.)