Page 6 - MWC 02-04-2021s
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High grain price                                                                           The Midwest Cattleman · February 4, 2021 · P6

      impacts on the                                                        breed and type, gender and over- centrate feed use is significant.
                                                                            all quality of the feeder cattle
                                                                                                                 When feedlots demand heavi-
                                                                            they purchase but also flexibility  er cattle, prices for lighter weight
      cattle industry                                                       to  feed  a  variety  of  animals.  In  feeder cattle will decline relative
                                                                            general, feedlots can place feed- to heavier cattle. For example,
                                                                            er cattle weighing from less than  the price for 825-pound steers
      by Derrell S. Peel, Oklahoma State University                         600 pounds to over 1,000 pounds.  in Oklahoma is currently about
                                                                            One of the biggest decisions  $131/cwt. When corn is, say $3.65/
         Grain and oilseed prices have  and by-product feeds will all gen- for feedlots is whether to  “buy  bu., feedlots would be willing to
      risen dramatically in  the last  erally rise proportionally through  pounds” (place heavier feeder cat- pay roughly $155/cwt. for a 575
      three to four months. For exam- market arbitrage.                     tle) or “feed the pounds onto the  steer based on the cost of gain to
      ple, the weekly cash price of corn    The  cattle industry  will  react  cattle” by placing lighter weight  put on the 250 pounds from 575
      reported for Dodge City, Kansas  to high feed prices somewhat  feeder cattle.  This decision will  to 825 pounds. When corn price
      averaged $3.41/bu. from Janu- differently than other livestock  change according to feed prices.  increases to say, $5.35/bu., the in-
      ary-September 2020.  The price  species. Unlike hogs and poul- As high feed prices push feedlot  creased cost of gain means that
      rose above $4.00/bu. by mid-Octo- try, where their monogastric bi- cost of gain up, feedlots have an  the feedlot would only be willing
      ber and by mid-January 2021 was  ology means that using less feed  incentive to  “buy more pounds”  to pay roughly $146/cwt. for a
      reported at $5.44/bu. July corn  implies reducing production, the  and place heavier feeder cat- 575-pound steer – even though
      futures are  currently  priced  at  ruminant biology of cattle means  tle. Thus, the cattle industry re- the price of the 825-pound steer
      $5.20/bu. Market prices for corn  that the industry will use less  sponds to corn market signals to  has not changed. Of course, high-
      are increasing to ensure that de- grain by changing how cattle are  use less corn by placing cattle at  er feed prices likely also means
      mand is rationed to match avail- produced  more  than  by  chang- heavier weights and using other  that the overall feeder cattle
      able supplies and adequate corn  ing production levels. Indeed, the  (i.e., forage) feeds to add addition- price level will decline as well.
      is available until the next har- supply of feeder cattle is mostly  al weight to cattle prior to feedlot  The change in feedlot demand for
      vest. Corn demand comes from  determined  for  2021  and  those  placement. This is the advantage  light versus heavy weight feeder
      many different markets includ- cattle will go through the feedlot  (and  necessity!)  of the  cattle in- cattle simultaneously provides
      ing livestock feed, industrial use  as usual but with a different pro- dustry to  use the ruminant ca- incentives for stocker produc-
      (primarily ethanol) and exports.  duction system.                     pabilities of cattle to respond to  ers to add the needed additional
      As  corn  prices  rise  each  market   The central decision that de- the corn market situation. If all  weight to feeder cattle. In the ex-
      will react to reduce corn use in  termines how feeder cattle get  the cattle finished in feedlots in  ample above, the value of stock-
      varying degrees according to the  finished and become part of the  2021 (that would have been fed  er gain is roughly $0.75/lb. when
      economic claim each demand  beef supply is feedlot placements.  anyway) are placed, say, an av- corn is $3.65/bu. but increases to
      type makes on corn. With corn as  Individual feedlots often have  erage of 100 pounds heavier, the
      the main driver, other feedgrains  particular preferences for size,  amount of reduction in total con-               continued on page 14


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