Ethanol Changing Cattle Price Equation

Traditional relationship between corn and cattle prices is getting skewed.

Ethanol production is causing a shift in the traditional relationship between corn prices and cattle prices, according to Darrell Mark, University of Nebraska agricultural economist.

Speaking to primarily to a cattle-producer audience at the Nebraska Grazing Conference in Kearney recently, Mark said higher corn prices appear to be prompting cattle feeders to bid more for heavier feeder calves, which are traditionally several dollars per hundredweight under lighter calves.

That's because cattle feeders have to pay more for corn. Prices quoted for distillers grains are often 80-95% of the price of corn on a dry matter basis.

Feeders have achieved good gains with wet distillers grains composing as much as 30-40% of the finishing ration, and it enables them to use lower quality forages for roughage.

That presents an opportunity to cattlemen to try to put some cheap gains on their calves before they sell them, Mark says. Producers may want to carry the calves for a while after weaning if their grass and forage situation allows, perhaps even utilizing distillers grains themselves as a protein supplement to stimulate gains.

At the August conference, Mark said that since Sept. 1, 2006, fed cattle prices are down $1.64 per hundredweight; 700-800-cwt. feeders are down $2.26 per hundredweight, 500- to 600-pound feeders are down $7.22 per hundredweight; and corn is up 99 cents a bushel. That's a considerable improvement from the price situation back in January, when the industry was trying to adjust to higher corn prices and the potential uses of distillers grains.

Historical models, which look past price relationships, would suggest that lightweight feeder calves would drop $12 per hundredweight if corn went up $1 per bushel, said Mark. Heavier feeder calves might be expected to drop $8 per hundredweight.

This suggests that ethanol production drives the impact of higher corn prices differently than a shortage-induced price rise. For one, increased use of corn for ethanol means increased amounts of distillers grains to feed cattle. And cattle on a high distillers grains diet gain better than cattle on the traditional corn, soybean meal and alfalfa diet.

Mark said that cattle production is at a historical low in the number of calves born. That means a tight supply of feeder cattle and plenty of empty bunk space to put them. And, buyers may have bid more for calves to feed than higher corn prices would reflect, hoping for corn prices would come down, he added.

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