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Higher priced corn challenging cattle prices

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The price of beef has been fluctuating widely of late.  It’s linked to the cattle supply currently in feedlots and consumer demand.

Profitability in all sectors from cow-calf to feedlots has caused the cattle inventory to grow for several years.  One reason was cheap grain but the uncertainty this spring has caused corn to rise almost a dollar a bushel.

Now, economists are watching the numbers to see if feedlot margins turn negative and what that can mean for the rest of the industry.

Audio: Profit Matters 6-28-19 

Kansas State University Extension Agricultural Economist Dr. Glynn Tonsor says, while the USDA Cattle on feed number was up compared to a year ago, in his view there were still no big surprises coming out of this report.

Based on the numbers in this report, cattle and calves on feed for the slaughter market in the United States for feedlots with capacity of 1,000 or more head totaled 11.7 million head on June 1, 2019. The inventory was 2 percent above June 1, 2018. This is the highest June 1 inventory since the series began in 1996. Placements in feedlots during May totaled 2.06 million head, 3 percent below 2018. Net placements were 1.99 million head. Marketings of fed cattle during May totaled 2.07 million head, 1 percent above 2018.

“On balance, there are no big surprises,” Tonsor said, highlighting his key takeaways from the report. “The fact that placements were slightly down might be supportive but they’re within the realm of pre-report expectations. So, I honestly don’t think this report will be a market mover.”Tonsor points out one interesting trend, which is an obvious effort to place heavier weight cattle. Classes of 600 to 700 lb. cattle was lower compared to a year ago, while 700 – 800 lb. groupings were up. This again should not come as a surprise, Tonsor says, given more expensive feed costs due to the uncertainty of the corn crop will drive people’s preference of placing heavier cattle. Couple that with the ample supply of cattle currently in the pipeline – Tonsor says the industry is looking at some negative returns. His projections put closeouts at $90 to $200 losses for each month between now and Christmas. That, he adds, is reflective of not only an elevated cost of gain projection but declining fed cattle expectations as well. To date, Tonsor explains that feeders have not been pulled down enough to offset that pressure.

“So, something’s got to give before those distant months start looking better – in the event the corn crop turns out better than current sentiment,” he said. “But I honestly think there’s going to be some more pressure on the feeder side to improve these margins.”