Livestock Market Comments
Feed Costs Spike
June 24, 2016 Volume 11, Number 10
David P. Anderson
Professor and Extension Economist
Livestock and Food Products Marketing
Feed costs have spiked in recent weeks on expectations of bad weather in South America cutting into yields of corn and soybeans. Summer has hit in the Corn Belt and worries about hot, dry weather and crop progress have conspired to spike both cash and futures prices.
The subject of feed cost volatility is one that the livestock industry hasn’t had to address as much in the last couple of years. Falling feed costs from record highs in 2012-2013 due to drought helped push calf prices to record highs. Remember that calf and feeder prices move inversely to feed costs. Large crops and large stockpiles have kept corn prices at their lowest levels since the ethanol boom began.
Omaha corn prices increased by about $0.40 per bushel over the last 6 weeks. They have given up most of those gains in the last week. The amount of price increase and subsequent decline has been very similar to last year’s July rally and decline.
The soybean meal market has experienced a much more shocking run. The Central Illinois soybean meal (48%) price ran from $273 per ton in April to $425 per ton just 2 weeks ago, before beginning to retreat. Corn and soybean meal represent the basic building blocks of feed rations for all livestock.
Feed markets (corn and soybeans) often spike up during the summer months. It happens most often, as in this year, on worries about hot, dry weather, especially at corn pollination time. Worries about timely planting and crop development will also lead to higher prices. These kinds of price spikes are often referred to as “weather” markets. Once the worries subside, when cooler temperatures or rainfall occur, prices often tumble back down to where they were before the spike. There is evidence that prices are already falling as this weather market subsides. In the futures market, July corn has fallen from about $4.30 to $3.80 per bushel, as of this writing.
Impact on the Calf Market
Not only have calf prices been hard hit by seasonally falling fed cattle prices, but higher feed prices have taken their toll as well. Since the run in corn and soybean meal prices began 5-600 pound steer prices in the Southern Plains have fallen about $20 per cwt. The same weight calves in the Texas Combined auction price series have fallen about the same amount, from about $174 to $156 per cwt over the last six weeks.
As a weather market, falling prices may give calf and feeder prices a boost as weather fears subside. But, feed cost volatility is back on the conversation list for the calf market.