Feedlot operators are already feeling the impact of higher corn prices, according to the Purdue University agricultural economist Michael Langemeier, who said corn prices have increased since mid-May and are expected to be quite volatile for the rest of the year.
December 2019 corn futures increased from $3.79/bu. for the week ending May 10 to $4.55 for the week ending June 28. Even though corn futures prices weakened after the release of the U.S. Department of Agriculture’s June crop acreage report, Langemeier said there was still a 13% chance on July 1 that corn futures prices could surpass $5.00/bu.
There is also a lot of uncertainty regarding corn prices for the rest of the year, since U.S. corn acreage in 2019 is still unknown. As such, the impact on cattle feeders is also unknown.
Langemeier relayed that feeding cost of gain since January has ranged from $82.35 in January to $91.67 in March and averaged $86.50/cwt. Feed conversions for the first five months of 2019 were approximately 9.0% above their seasonal averages, resulting in a feeding cost of gain that was approximately $8.00/cwt. higher than projections.
In the May issue of Kansas State University’s “Focus on Feedlots,” the estimated feeding cost of gain for placements in May was $87/cwt. However, Langemeier said it is important to note that this estimate was made before the recent increase in corn prices. Estimates of feeding cost of gain for the rest of 2019 can be found below.
As of July 1, Langemeier said there was a non-trivial probability that fall corn futures prices could be below $3.50 (14%) or above $5.00 (13%), with a calculated midpoint futures price of $4.16/bu.
If corn prices in the second half reach $4.50 and feed conversions are 5% above their seasonal averages, Langemeier said feeding costs of gain for the third and fourth quarters are expected to range from $84 to $87/cwt. and from $87 to $91/cwt., respectively. If corn prices are $5.00, the feeding cost of gain is expected to range from $89 to $92 in the third quarter and from $92 to $96 in the fourth quarter.
Cattle finishing net returns are expected to be affected. Langemeier said the feeder-to-fed cattle ratio during the last 10 years averaged 1.20. The projected ratios this year are 1.30-1.35 for the third quarter and 1.17-1.21 for the fourth quarter.
“The relatively high ratio for the third quarter does not bode well for net return prospects,” he said.
For the first five months of 2019, cattle finishing losses ranged from $12 in April to $55 in February and averaged $40 per head. Langemeier said breakeven prices are expected to range from $119 to $122 in the third and fourth quarters. The breakeven prices, particularly for the third quarter, are well above expected cash prices.
“Consequently, cattle finishing losses are expected to range from $150 to $225 in the third quarter and from $25 to $75 in the fourth quarter. Higher corn prices have helped lower feeder prices, but not enough to prevent losses,” he noted.