The markets have had some dramatic changes over the past few weeks and more change is coming. A major focus right now is the corn crop and if it will get planted. Farmers in the Corn Belt have had too much rain and haven’t been able to get in the fields. They have been very busy this last week figuring out what to do. On May 12 only 30 percent of the nation’s corn had been planted. On May 19, 2018 78 percent of the crop was already in the ground. Then throw unseasonably cool weather on top of it all. Let’s hope it stays dry for another couple weeks. I’ve been told that June 5 is when they need to start thinking about planting soybeans so they can just have a crop.
The corn futures markets have been paying attention, and corn prices are starting to soar. Dec corn was at $4.49 last Thursday, up 14 cents. Projections of a short crop don’t look so good. Supply and demand tables are saying that we’ll be a half-a-billion bushels short of last year’s crop. Let’s do the math: The expected carryover of the 2019/20 crop is 1,439 billion bushels, which will be the lowest since 2013—the year of the big drought that hurt nearly everyone in agriculture—leaving 9.9 percent of the crop to carry over to the following year, again the lowest since 2013 when corn was trading around $7 a bushel.
Feeding cattle might get more expensive, and as the old saying goes, “Expensive feed makes for expensive cattle.” The cash fed cattle market was established at $117 last week. Cattle feeders are starting to put up a little resistance to the packers and hold the line. June live cattle are trading at $113. So, the narrower the basis, the more resistance to sell, or they’re running out of covered cattle.
The Cattle on Feed report was very positive going into summer. Cattle feeders appear to be current on their marketings. According to Andy Gottschalk at Hedgersedge.com, the number of cattle on feed for more than 150 days is just 2 percent higher than last year and the numbers are consistent with last years on feed numbers, all the way to September. The market could stabilize for a while. It’s been established that the winter high on fed cattle this past winter was $128. If we look at the typical break of around 17 percent, we could see the summer low down to around $106. The only negative sign is that carcass weights are 3 to 4 pounds higher.
So, what’s that going to do to feeder calf prices drag them down? Cattle feeders will be buying feeder cattle very close to what the futures markets say they can do. Breakevens on fed cattle will be elusive. Corn prices will have a very active role in feeder cattle values going forward. Those $160 August feeder cattle contracts looked pretty good six weeks ago, and if you hedged, good job!
One positive aspect of the feeder cattle and calf markets is that we are having one of the best, widespread grass years in a long time. Looking at the Drought Monitor map, most all of the country is in normal to better-than-normal shape for grass. Northwest Washington and western Arizona are the only two areas where it’s excessively dry. So, we should see bigger calves, bigger yearlings and perhaps more replacement females on these Western ranches.
The big videos are just about to start. Superior’s “Corn Belt Classic” starts this week and they will offer more than 50,000 head. Western, Northern and Cow Country videos will start very soon. These sales typically generate some of the top prices paid for calves and yearlings throughout the year. It’s a must to watch some of these auction sales so you can determine what your cattle are worth. There is a lot of value difference between Natural, NHTC, sires and genetics, verified, the list goes on and on, and values can range $25/cwt between cattle types and protocols.
If corn prices go sky high, there will be some differences between now and the 2013 market. Plenty of grass won’t force a cow liquidation, and I think the dairy industry is on the downside of their episode. We have much higher cattle inventory so there will be plenty of cattle to feed. Cattle feeders can afford to be picky, and they won’t pay more than they absolutely must. What we’re going to need for cattle producers is more demand. Demand is very good, but it must improve even more. We need exports to pick up the slack. — PETE CROW
