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Calf producers learn that the world isn't fair

Not everyone is treated equally in the cattle market. Feeder calf producers are learning that the hard way this year.

In the price squeeze that is hitting the beef industry right now, with increasing cattle numbers and rapidly escalating feed costs, feeder calf prices are being impacted the most. In a message to cattlemen today at the National Cattle Industry Convention, Cattle-Fax market experts said that prices for finished slaughter-weight cattle didn't change much last year, and won't change much this year at about $85 per hundred for a yearly average.

Meanwhile, prices for 550-pound steer calves are almost in free fall. After averaging $125 per hundred in each of the last two years, they will average $110 or lower in 2007, said Kevin Good, Cattle-Fax market analyst. They will fall to less than $100 per hundred in 2008 and 2009, Good told the beef producers.

"Feeder cattle producers are expected to remain profitable for a couple more years, but margins will be thin for average producers later in this decade," he said. There could even be brief periods when prices for feeder calves drop below prices of finished cattle.

The big reason for that price inverse is feed prices. As the price of corn has gone up, the profit level per head in feedlots has shrunk by over $100 a head. The per-head price of feeder cattle has dropped by almost that same amount. In other words, feedlot operators have completely bid into the marketplace their extra feed costs, and calf sellers are paying that bill.

Other highlights from the Cattle-Fax 2007 outlook seminar were:

  • Corn acreage will increase by at least 7.5 million acres, leading to a 12.1-billion-bushel crop with a trend yield (153 bushels per acre). "We need that much, or there will be real concerns in 2008," said Mike Murphy of Cattle-Fax. "This feed price issue is not a short term thing."
  • This year, ethanol co-product feeding will displace 500 million bushels of corn that would have been fed.
  • Current price volatility is leading to greater regional disparities in the price of feed grain. As an example, the typical corn price spread between Hereford, Texas, and Omaha, Nebraska, has been about 64 cents a bushel. In recent months, it's widened to 77 cents a bushel (cheaper in Omaha). That discrepancy could translate to a $50 a head feed cost advantage to northern feedlots, and that could influence regional cattle feeding trends in the future, said Murphy.
  • Beef exports in 2006 improved to about 55% of the pre-BSE levels of 2003. Officials hope they can grow to 70% of those levels this year, with greater market access in Asia.
  • With the need for a big crop this year, the grain markets will be extra sensitive to weather. Art Douglas, a weather expert from Creighton University, said that the current El Nino in the Pacific Ocean appears to be rapidly dieing. That usually predicts of a warm, dry summer in the U.S. "The right combination for drought is coming together," Douglas told the beef producers. "The upper Midwest could be hotter than normal, with slightly below normal precipitation."

Not everyone is treated equally in the cattle market. Feeder calf producers are learning that the hard way this year.

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