Rising corn costs strain cattle feeders

Oct 30, 2009
by DTN
Rising corn costs strain cattle feeders

Rising corn prices combined with other economic factors such as a weak dollar and higher crude prices are pressuring cattle feeders and could force more of them out of business in coming months.

Financial conditions for cattle feeders aren’t likely to get better without some unforeseen event to push beef demand or to lower corn costs, according to industry participants. Wet weather patterns are camped over the Midwest and its prime corn and soybean fields, holding up the harvest of a potentially bin-busting corn crop.

The Chicago Board of Trade December corn futures contract rose 32.2 percent in the last six weeks, topping out at $4.035 a bushel last week as the National Agricultural Statistics Service reported the harvest falling farther and farther behind.

Adding to the corn market’s woes are reports of crop quality problems, analysts and traders said. Many fields were damaged by an early freeze that halted crop development before the plants could mature properly, and the continual wet weather is said to be causing mold and other condition issues with the corn.

Soybean harvesting also is being hampered because the plants won’t dry enough to allow harvesting, analysts said. Once the fields begin to dry, farmers likely will bias their harvest efforts toward the beans since they are less well-adapted to remaining in the fields than the corn.

The weak U.S. dollar also adds to the corn market’s strength, said Elaine Johnson, market analyst at CattleHedging.com. Johnson said higher crude oil prices also are a factor because of increased demand for ethanol. The weaker U.S. dollar is a primary driver behind higher crude oil prices. Crude is traded in dollars, and a stable return in foreign currencies demands a higher price in terms of U.S. dollars, she said.

The result is a cost structure that is “spiraling out of control,” Johnson said.

Some cattle feeders booked their expected grain needs in early September when prices were at their lowest, Johnson and other analysts said. These feeders now look like great mind readers and appear to be well situated to weather the rise in feed costs.

There is no way to tell whether a large percentage of cattle feeders had the foresight to book expected corn needs in early September. Johnson said from her perspective, it looked like a larger-than-normal percentage of feeders did so, but this still represents a fairly small percentage of the U.S.’ total number of cattle feeders. Many booked only a portion of their expected needs.

One cattle feeder said he did not book expected feed needs because he did not have cattle on feed at the time. It seemed imprudent to book feed for cattle he did not own, he said.

Buck Wehrbein, a feedlot manager in Nebraska, said the delayed harvest also is causing some short-term problems. Many elevators have cleared space for the new crop that isn’t coming, and there is no dry corn available, he said. In addition, the industry’s ability to dry such a large crop will be stretched to the limit even if the combines can manage to get through the fields, Wehrbein said. This may not be as big of a problem if the wet weather continues and the crop comes in slowly. Analysts also noted that there is a limited time span now for corn to dry in the field. — DTN