Aug 3, 2012

Corn crunch

Cattle markets have declined a bit over the past few weeks but they are still relatively strong. Yearlings at 750 pounds are still selling for $150/cwt. And light calves are still selling around $200 or more. The big question is, what are you going to feed them?

This drought situation is getting worse every day and USDA has over 1,452 counties in 32 states declared as disaster areas. You look at the drought monitor map and the top tier of the U.S. and the Gulf Coast are the only areas that are not in terrible condition. Fifty-seven percent of the nation’s pastures are in very poor or poor condition.

Last year, Texas and Oklahoma were the epicenter of the drought and they moved over a million cows out of those two states. Under the conditions we currently have, we might see another million or so sent to the packing house.

Feedlots will certainly fill up again but feed costs are going to remain a big challenge. Cattle feeders have already been able to buy replacements for less and if this drought persists, they will be able to buy cattle for lower money.

We have been hearing folks say that this is the worst drought we’ve seen in 50 years. The last documented drought was 1988.

With $8 corn and the idea that we’re going to have a corn crop somewhere above 120 bushels per acre, it has already shut down several ethanol plants. It’s simply unprofitable for them. But the livestock industry can’t just shut down and wait for corn to get cheaper. Also, the loss of these plants and ethanol will reduce the supply of distillers grains, which is selling between $200-300 a ton.

Steve Meyer at CME said that a big wild card at this point is the position the Environmental Protection Agency (EPA) will take with regard to the ethanol mandate. At what point does the impact of high feed costs on livestock producers become high enough to warrant a temporary waiver of the ethanol mandate. In some areas, livestock reduction has been tenuous enough that the current feed crisis could lead to thousands of family farms getting out of business.

USDA announced last week that they are going to open 3.8 million acres of Conservation Reserve Program (CRP) ground for haying and grazing. Under certain conditions, the haying and grazing may only occur under strict compliance rules to help minimize impacts on these sensitive specialty practices. USDA also got crop insurance companies to provide a short 30-day grace period for farmers Several organizations are trying to get EPA to establish a waiver on ethanol mandates so we will have more corn available for food production.

Hay will also be in short supply; some ranchers have told us that they are only getting a 35 percent yield on some of their hay fields. Good quality alfalfa is trading between $200 to $250 a ton throughout most of the country. Irrigation water in the mountain states is very short. The string of 100-degree days we had in July melted a lot of snow quickly and some farmers have not been allowed to irrigate in the Platte Valley drainage.

Ironically, the Canadians have had lots of rain and lots of pasture and hay. It’s rained so much that they are having a hard time getting the hay out of the fields. They are also looking at a huge barley crop, but with all grains trading at high levels, their feeding costs are expected to be high, too. I was told by one market operator that U.S. cattlemen can bring up calves to put on grass, but they have to return to the U.S. or they will have to pay fines and fees, in addition to a novel of paper work.

It’s going to be a challenge this winter to secure enough feed to keep a cow herd together. Even if we get some good August rains, hay supplies will still be thin. There are several alternatives and the one that we’ve been hearing a lot about is harvesting damaged corn that will have very little or no ears and chopping it up for silage, but nitrates can be a problem if it’s not handled and fed properly. Drought silage has less energy and generally higher crude protein than normal silage. Also, soy beans are an option, and can be bailed and fed as hay without major nitrate concerns.

Cattlemen should get their feed situation figured out soon and secure enough to supplement what feedstuffs you already have inventoried. This is one of those years that you’ll need to be creative on feed in order to keep a cow herd together. — PETE CROW