The Prairie Star: Montana Ag Newspaper

RIVERTON, Wyo. - Livestock economists are expecting heavier cattle entering feedlots and longer grass-fed beef entering the market this year as a result of higher corn prices, according to Troy Applehans of Cattle-Fax in Denver, Colo.

“The feedyards are getting some competition from grass producers where the costs of gain are lower,” said the economist during the Wyoming Beef Symposium on April 6 in Riverton, Wyo.

“The costs of gain in the feedyards have gone up from around 50 cents a year ago to as high as 80 cents or more in certain instances this year, which certainly has an impact on the price of calves ... I believe the market has the potential to get $1 or slightly more in fed cattle prices, but it will have to be in the next 60 days.”

Shortly after the April 6 meeting, fed cattle prices did, as Applehans suggested, reach $1 per pound.

The fed cattle prices very likely could dip into the mid-80s around Memorial Day on in late August when the market typically experiencing its lows for the year. In most years, the market moves 14 percent from its high price to low, he added, noting “the fed cattle price has been resilient during the first quarter and have slightly exceeded our expectations.”

Ethanol markets can afford to pay $4 per bushel of corn as long as the crude oil price stays at $60 per barrel or more with the federal tax credit received per gallon of ethanol sold. However, without the credit, the ethanol companies can afford only to pay $2.50 per bushel of corn at the $60 per barrel crude oil price, according to Cattle-Fax. This means the oil companies can somewhat control the ethanol companies' profits.

“The oil industry as a whole will likely force the ethanol industry into a break even business where the most efficient producers prosper, while others have the potential to fail,” said Applehans.

Though the cattle price has recovered from the ethanol boom quicker than he anticipated, ethanol has had an effect on the corn market, which in turn affects the cattle market.

“The rule of thumb is a 50-cent change,” said Apple-hans, “which will affect the breakeven price of a 750-pound steer by $6 to $7 per hundredweight, a 550-pound steer by $12 to $14 per hundredweight, and in certain instances the costs of gain can be above the fed cattle price. It's not a good thing, but that is the kind of impact corn can have.”

This year, the feeder cattle price recently went above a year ago. “Don't anticipate feeder cattle to get much higher by the end of the first quarter and early second quarter,” said Applehans. “The price will be impacted at the end of the summer when the grass runs out, when they may get cheaper because there will be plenty of supply to the feedyards.”

The price of calves is seasonal - in October the price goes down when producers want to sell their calves, but in the April and May time frame, the price is high.

Applehans suggested cow-calf producers may want to forward contract their calf crop as early as possible after birth when the price is higher and deliver the calves in October when they would normally ship the calves.

“It means making a significant financial decision on the bottom line,” he said. “I believe we'll see cheaper calves in subsequent years, mostly because high grain prices don't appear to be a short-term problem, but will likely be with us for the foreseeable future.”

The stocker operator is an industry shock absorber, according to Applehans, as they have the ability to cheapen up cattle by adding lower cost of gains to them and adding value by improving the quality.

“They are selling the roughage and management,” he said. “It's been a high return business in recent years.”

Applehans said he believes cow-calf producers can benefit from this year's market outlook by paying close attention to the calves' health and genetics. According to Cattle-Fax, the successful cow-calf producers typically have lower cow costs and feed resources while at the same time they focus on and invest more in genetics, nutrition and herd health management practices and are rewarded with higher weaning rates, higher conception rates, higher rates of gain and less debt.

“They don't cheat on animal health and nutrition, and they get genetics to fit their environment,” said Applehans. “Also, we've seen preconditioned calves get a premium of $5 to $8 per hundredweight in recent years.

Other premiums Cattle-Fax has seen producers be rewarded for include performance history of $2 to $4 per hundred weight and source and age verification of $20 to $25 per head over the average market price. The natural premium has faltered somewhat when grain prices increased, but depending on the program premiums can still be had, he noted.

“The cull or market cow sector of the business has been one of the best retained ownership opportunities we've seen through the years,” he said. “If you can feed them roughage or a cheap diet that gains them weight with other supplementation through the winter, you could sell them at a higher weight during a more opportune marketing time frame in the spring, when seasonally the prices are higher Š The price spreads within weight groups of feeder cattle and calves are becoming increasingly wider. Buyers are willing to pay more for known and predictable genetics of cattle that have a history, while others may be discounted. Changes will be taking place at a faster pace in the future.”