How High Grain Prices Impact the Cattle Industry
by Dr. Derrell Peel, Oklahoma State University
G
rain and oilseed prices have risen dramatically in the last three to four months. For example, the weekly cash price of corn reported for Dodge City, Kansas averaged $3.41/bu. from January-September, 2020. The price rose above $4.00/bu. by mid-October and by mid-January 2021 was reported at $5.44/bu. July corn futures are currently priced at $5.20/ bu. Market prices for corn are increasing to ensure that demand is rationed to match available supplies and adequate corn is available until the next harvest. Corn demand comes from many different markets including livestock feed, industrial use (primarily ethanol) and exports. As corn prices rise each market will react to reduce corn use in varying degrees according to the economic claim each demand type makes on corn. With corn as the main driver, other feedgrains and by-product feeds will all generally rise proportionally through market arbitrage. The cattle industry will react to high feed prices somewhat differently than other livestock species. Unlike hogs and poultry, where their monogastric biology means that using less feed implies reducing production, the ruminant biology of cattle means that the industry will use less grain by changing how cattle are produced more than by changing production levels. Indeed, the supply of feeder cattle is mostly determined for 2021 and those cattle will go through the feedlot as usual but with a different production system. The central decision that determines how feeder cattle get finished and become part of the beef supply is feedlot placements. Individual feedlots often have particular preferences for size, breed and type, gender and overall quality of the feeder cattle they purchase but also flexibility to feed a variety of animals. In general, feedlots can place feeder cattle weighting from less than 600 pounds to over 1,000 pounds. One of the biggest decisions for
80
FEBRUARY 2021
Beef Quality Assurance
feedlots is whether to “buy pounds” (place heavier feeder cattle) or “feed the pounds onto the cattle” by placing lighter weight feeder cattle. This decision will change according to feed prices. As high feed prices push feedlot cost of gain up, feedlots have an incentive to “buy more pounds” and place heavier feeder cattle. Thus, the cattle industry responds to corn market signals to by Bob LeValley, Oklahoma Beef Quality Assurance use less corn by placing cattle at heavier Coordinator, OSU Extension weights and using other (i.e. forage) feeds This article first published in the Enid News & Eagle. to add additional weight to cattle prior to feedlot placement. This is the advantage he Beef Quality Assurance (BQA) (and necessity!) of the cattle industry to use program is a producer-driven certifithe ruminant capabilities of cattle to cation program in which cattle respond to the corn market situation. If all producers work toward a common goal to the cattle finished in feedlots in 2021 (that assure consumers that cattle from each would have been fed anyway) are placed, segment of the industry (cow/calf, stocker, say, an average of 100 pounds heavier, the feedlot) are healthy, wholesome, amount of reduction in total concentrate quality products. feed use is significant. The cattle are managed in a way that is When feedlots demand heavier cattle, appropriate to each individual operation, so prices for lighter weight feeder cattle will that beef quality and safety are considered decline relative to heavier cattle. For in all production practices. Many view BQA example, the price 825 pound steers in as a “consumer confidence” program, in Oklahoma is currently about $131/cwt. which consumers can feel assured that the When corn is, say $3.65/bu., feedlots would beef they purchase has been produced be willing to pay roughly $155/cwt. for a 575 using the best production practice stansteer based on the cost of gain to put on dards in the cattle industry. The cow/calf or the 250 pounds from 575 to 825 pounds. stocker segments of the industry may often When corn price increases to say, $5.35/bu., seem distant from the retail meat counter, the increased cost of gain means that the but many early management decisions and feedlot would only be willing to pay roughly tasks may influence the quality of that beef $146/cwt. for a 575 pound steer - even product. When a beef producer becomes though the price of the 825 pound steer has BQA certified it helps sends a message to not changed. Of course, higher feed prices consumers that they are willing to do what likely also means that the overall feeder is necessary in their management of cattle cattle price level will decline as well. The to assure they are producing a change in feedlot demand for light versus quality product. heavy weight feeder cattle simultaneously The BQA program is voluntary. There is provides incentives for stocker producers no requirement for cow/calf or stocker to add the needed additional weight to operations to be BQA certified unless they feeder cattle. In the example above, the sell calves into a premium or branded value of stocker gain is roughly $0.75/lb. program that may have BQA certification when corn is $3.65/bu. but increases to as a requirement. Most packers require fed $0.97/lb. when corn price increases cattle they purchase to be sourced from to $5.35/bu. BQA certified operations, so nearly all feedHigher corn prices provide incentives for lots are BQA certified. While certification is feedlots to change how cattle are finished not a requirement for cow/calf and stocker and those decisions, in turn, will signal the producers, it may however, have some ecorest of the cattle industry to make produc- nomic value to cattle buyers to know that tion adjustments utilizing the ruminant the calves have been produced following flexibility of cattle in response to changing BQA management principles. feed prices. Relative to a given fed cattle The BQA program focuses on the followprice level, higher feed prices implies lower ing management areas: feeder cattle prices with prices of lighter weight feeder cattle under more pressure ЇЇ Care and management practices. than heavier feeder cattle. ЇЇ Feedstuffs. ЇЇ Feed additives and medications.
What is it & why should I care?
T
▫
continued on page 82 >>
