Calves and Corn: Decisions, Decisions
The acres planted in corn for the 1998 growing season are up 1 percent from last year, exceeding 81 million acres. With good early rains, this crop is set to be one of the largest since 1985. I would like to emphasize that while this is the largest planting, it does not mean that it will be the largest harvest because, like most crops, "it just depends on the rain." Climatologists are predicting normal to below normal rainfall totals for the Corn Belt in the current growing season.
The price of corn should affect the price of cattle. Assuming all other variables remain constant, we expect an inverse relationship, meaning that lower corn prices should cause higher feeder cattle prices (see Break-even Purchase Price chart). However, in the real world we know that all other factors do not remain constant. One factor that may have a negative effect on the price of feeder cattle this fall and winter is the feedlots' lack of profitability in 1998. Feedlots may refuse to bid up the price of feeder cattle in an attempt to regain some losses that they incurred in the first half of 1998. Another factor that may limit the increased price of feeder cattle is the price of live cattle.
Analysts are not predicting a large move in this market, and assuming they are correct, we can anticipate no support from this market.
News of a relatively inexpensive cost of gain throughout the feedlot segment may lead producers to assume that an opportunity exists for them to add value to their product through retaining ownership.
Predictions of a cost of gain at or below 50 cents makes this an attractive option. Considering the current difference between calf and feeder prices, it will be extremely important for producers to identify their costs and assure increased profits per head before making the decision to retain ownership. It is important to remember that if it does not work on paper, it most likely will not work in practice.
In writing this article I have learned a lot, not only about the current decisions facing the spring calf producer, but about the creation of a published article. Of the two, I am not sure which has been most beneficial.
However, the one that I am sure the reader is most interested in is my final thoughts on the decisions facing the spring calf producer. I feel that as the decision time approaches it will be extremely important for producers to identify their costs and assure themselves that increased profit does exist through any decision to retain ownership. A low cost of gain does not mean that cattle will add value in the feedlot!
Note: Jeff is a senior agriculture economics student at Oklahoma State University, and is working as an intern at The Noble Research Institute this summer.