Corn prices and drought impacts on feeder cattle markets
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EmailPossible impacts of the drought and corn prices on the feeder cattle market.
John Anderson of the American Farm Bureau Federation recently wrote an article, “Impact of Higher Corn Prices Starting to Show” as part of In The Cattle Markets newsletter.
In summary, he discussed some possible impacts of the drought and corn prices on the feeder cattle market. We all know what the drought is doing in the corn belt and what that is doing to corn prices. In case you live under a rock, corn prices on the futures markets have gone up anywhere from 40-50 percent.
When corn prices go up, typically feeder calf prices go down. That is what is happening in the futures markets. The nearby Feeder Cattle contracts (as of July 17) on the CME were trading around $136 - a decline of about $24/cwt. since mid-June. Not only the corn price but drought induced sales of cattle may also factor in this decline.
Prices of different weights of cattle are also impacted. The lighter weight calves take more of hit in prices than heavier weight calves. This makes sense as it takes more corn to feed them out. You may think, ‘Well I will feed something other than corn,’ which you can do, but any energy feed fed to cattle is basically tied to corn prices, so those prices go up as well.
Some things I think that producers need to consider is: ‘If I have enough feed is should I hang onto my calves to a heavier weight?’ That is what the market is hinting at. ‘Then again with where the hay market is going should I sell the hay at what are likely to be higher prices?’ These are the questions feeder cattle producers are likely to wrestle with these next few months. The right answer is going to be the famous line Ag Economist’s line they like to say, ‘It depends’. It probably is a good idea to push the pencil to see what it means for you. At least you have something to think about while admiring the warm summer sunset.
