Corn Prices Shaping Up as Agriculture's Top Issue In 2007
by Dan Childs
- It appears that 2007 is stacking up to be an exciting year for U.S. agriculture. A few of the issues worth watching are:
- • Congress working on the new farm bill (especially with so many newly elected members);
• international beef trade;
• energy prices and the expanding biofuels industry;
• hay and grain prices;
• lingering impacts of the 2006 drought;
• beef, pork and poultry prices; and
• developments in guidelines for natural, organic and "never-ever" beef.
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Some of these issues are very political and controversial, while others are the result of supply and demand relationships sometimes affected by a particular weather extreme. Not all of these issues will affect every producer, but one or more will affect all producers. Since many producers in the Noble Foundation's consulting area engage in forage-based beef production, I will focus on some of the above issues that may affect these producers.
Besides the weather, cattle prices and the high costs of inputs are the topics most discussed by farmers and ranchers. The new farm bill will likely have more of an indirect rather than direct impact on cattle producers. However, it will be worth monitoring, since some of the titles will likely affect cattle producers' costs of production, such as the commodity and conservation and possibly energy titles. Grain, beef, pork and poultry producers recently have witnessed how ethanol production has affected the price of grain and the immediate repercussions at livestock auction markets across cattle country. On Sept. 13, 2006, December corn futures closed at $2.24 per bushel. Exactly 90 days later, December corn futures closed at $3.54 per bushel, a 58 percent increase right in the middle of corn harvest a time when corn prices typically soften.
During the same period, the value of a 750-pound steer calf went from $120 per hundredweight to $104 per cwt, a 13.3 percent decline, or roughly $120 per head. That is more than the average stocker operator projects for profit per head in a normal year. In 1996, the cattle industry experienced the effects of $5.50 corn, when calves, feeders and fed cattle brought the same price per pound. However, in 1996, the industry was at the cycle peak in terms of numbers. Today, the industry is only a couple of years past the bottom of the cycle. (The industry started rebuilding numbers in 2004.) It is unlikely the industry will see margins across classes disappear as happened in 1996. It is likely, however, that producers will witness feedyards bidding higher prices for heavier feeders (800 to 1,000 pounds) relative to lighter weight feeders (600 to 800 pounds). That signals to cow-calf and stocker operators to put more weight on calves and yearlings at home with grass and/or by-product feeds. Cost of gain in feedyards for cattle placed now and into the future is projected to be on the north side of $70 per cwt. Therefore, a management strategy for producers who sell their grass through cattle is to determine their cost of gain at the farm. If it is less than 50 cents per pound, it is very likely the value of that gain will be higher than 50 cents and, therefore, profitable to gain cattle to much heavier weights than the industry has normally done in the past.
High grain prices affect the pork and poultry industries much more than the beef industry. There are not many other ways to produce pork or poultry with the highly integrated production systems in place today than with high concentrate diets. If the beef industry's competitors cut production in response to higher feed costs, this puts less meat in the system, which will likely support higher retail pork and poultry prices. With higher competing meat prices, it is likely beef prices also will rise. The fact that beef producers and feedyards can use by-products produced by corn ethanol refineries gives the cattle industry more to look forward to.