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Falling corn prices lead to high steer prices

BROOKINGS — A large corn crop and falling corn prices this fall have resulted in record or near record high feeder steer prices, said Darrell R. Mark, adjunct professor of economics at South Dakota State University.

Prices for 700-799 pound yearling steers in South Dakota posted an all-time record high of $172.64 per hundredweight during the week ending Oct. 18, the first week of reporting after the government shutdown ended.

“In the weeks since then, those yearling steer prices have settled back to $169 to $170 per hundredweight; still, that’s fully $30 per hundredweight higher than during late May 2013,” he said.

Lighter weight steer calves weighing between 500 and 599 pounds have averaged $190-191 per hundredweight for the last month, which Mark said is only about $8 per hundredweight lower than the all-time high established in June 2012 for this weight of feeder steers.

He explained in his article the price increases in the feeder cattle market are resulting from supply and demand factors.

“Historically small cow herds have restricted calf crop supplies for several consecutive years. Now, as some herd rebuilding begins, fewer heifers are available for feeding as more are held for breeding replacement,” he said. “On the demand side, ample feeding capacity and much lower corn prices this fall have spurred interest in placing feeder cattle amongst commercial feedyards and farmer-feeders.”

Mark said it’s likely these supply and demand fundamentals won’t change for a year or more, which could drive feeder cattle prices to new highs in the year ahead. In the meantime, examining the economics of feeding programs at current price levels is important.

At $4.10 per bushel for corn, $59 per ton for wet distillers grain, and $60 per ton for ground corn stalks, a feed ration can cost about $172 per ton on a dry matter basis, Mark explained.

“When adding in other costs like yardage, death loss, veterinary and health, and interest on the feeder steer and half of the variable feed expenses, total cost of gain is about $82 per hundredweight, assuming average cattle performance,” he said. “With hedging opportunities around $136 per hundredweight for April 2014 fed cattle, there is about $82 per head profit in placing these yearling steers now.”

Mark also projected the feeding costs for placing lighter weight calves on feed at today’s prices. Doing so is a breakeven proposition, he said, because the finished date is later in the summer during the seasonal low in the fed cattle market.

He noted it might be possible to avoid marketing the calf-feds during this time period by lengthening the feeding period and targeting them for slaughter after prices seasonally rebound from the summer lows in September or October.

As always, Mark said costs, cattle performance, and other assumptions will differ amongst feeders.