Cattle producers should see a bit of relief from high feed expenses over the next few months. The CME DEC ’22 Corn contract has fallen from a contract high of $7.64/bu. on May 16 to $6.23/bu. Some other commodities used in feed rations, such as distiller’s grains, have seen similar downward moves. These feed price changes can have a compounding impact on feeder cattle prices. As inputs become cheaper, feeder cattle become a relatively more profitable investment which lifts their value. It is common to see corn and feeder cattle prices move in opposite directions.
In the chart below, the CME DEC ’22 Corn price (black line) has declined significantly from mid-June to now. Corn is a significant input in feeding cattle and the CME OCT ’22 Feeder contract (green line) experienced a corresponding increase in value.
Since the contract high two months ago, cost of gain (COG) has fallen significantly while feeder cattle also became relatively more profitable. If COG is calculated:
then estimated COG, including yardage, fell from $1.11/lb. to $0.90/lb. from mid-May to the present, providing at least $0.20/lb. additional revenue before even considering the change in value of feeder and fed cattle. This also makes dry-lotting cows and placing lightweight cattle on feed a more feasible option given low pasture availability and historically high price of forage.
Benavidez, Justin. “Falling Corn Prices and Cost of Gain“. Southern Ag Today 2(29.2). July 12, 2022. Permalink
