Despite the recent USDA grain stocks report projecting bullish prices for old-crop corn, there are signs that high prices are crippling regional livestock feeders who rely on Midwest corn for some 60% of their grain rations.
Citing “increased feed costs resulting from the prolonged drought, combined with herd liquidations by cattle ranchers,” Cargill Meat Solutions announced Thursday it was closing it’s Plainview, Texas, slaughter plant. The plant has a slaughter capacity of 4,600 cattle/day, about 4% of the nation’s steer/heifer slaughter capacity and 16% of the Texas Panhandle’s capacity.
Based on about 50 bu. of corn consumed by one steer on feed 150 days to reach 1,250 lb., those 4,600 combined cattle consumed about 230,000 bu. while on feed. If the plant ran five days a week all year, that’s tens of millions of bushels annually those cattle could have consumed.
Of course, that’s a small part of total corn production. But it’s an illustration of how $7-8 corn can impact feeders. They have been losing money much of the past two-three years. Some feedyards are seeing slim profits now. But they are borderline profits. They’re even tighter in the southern plains, where corn basis can be 50¢-75¢ over futures.
“With these high prices, it just doesn’t pay to feed them,” says Tyler Keeling, broker-analyst for Amarillo Brokerage Co., Amarillo, Texas. “There can be a ceiling, a spot where cost-of-gain just out-runs the price of cattle. By this July, we will be counting the number of days left in the corn supply. If corn approaches $8, it gets down to less demand.”
USDA’s projected ending stocks for 2012 was 602 million bushels. “Many analysts think the USDA may be understating exports and we could have a sub-500 million bushels in ending stocks when it is all said and done,” says Craig Turner, analyst for Daniels Trading, Chicago.
“The cash and futures markets will have to trade higher to effectively ration demand. March corn could go to $7.50-7.60. If the U.S. corn export market gets hot we could see $8 this summer.”
Drought could keep markets high. But a normal corn production year could drain the market. “New crop is a completely different animal,” Turner says. “If we have a normal growing season with trend yields, new-crop corn will be trading around $4. While old crop is all about demand, new crop is all about supply right now.”
Cattle feeders and other users will savor lower prices. But then, tight cattle supplies may still limit feeding numbers. And that’s still less corn being fed.