Calves shifting to feedlots

Cattle producers are likely to use more corn than previously expected according to the U.S. Department of Agriculture’s latest Cattle on Feed report.

The implication of the October 21 report is that feed grains used by cattle in feedlots from the 2011 crop will be more than 5% higher than what was fed from the 2011 crop.

“The real surprise was the higher number of placements in September that resulted in more than one-half million more cattle being fed than a year ago,” said Purdue Extension agricultural economist Chris Hurt.

Calves can eat corn, but also can add weight with forages. However, according to Hurt, the high number of feedlot placements in September serves as an indication that corn has become “cheap” relative to forages.

“December corn futures fell by $1.75 per bushel in September, which was enough to shift the feedlot outlook from bleak to rosy,” he said. “Managers responded by buying light-weight animals, as placements of calves under 700 pounds were up a remarkable 14%.”

Placing such a large number of young cattle in feedlots means they will be on grain diets, instead of forages, for a long time and will consume a lot of feed grains.

Hurt said another factor contributing to the surge in young calves on feedlots has been the bullish, or strong, finished cattle market. April 2012 live cattle futures jumped $2 per hundredweight in September and added another $3 by early November.

Anticipation of limited 2012 domestic beef supplies and foreign buyers willing to pay high prices for U.S. beef are two major drivers in the markets right now.

“Per capita availability of beef in 2012 will be down to just 54.3 pounds according to USDA estimates,” Hurt said. “That’s a startling 17% reduction since 2007 when escalating corn prices set the beef industry into a liquidation tail-spin.”

USDA also predicts a record 2.7 billion pounds of beef to be exported this year, which encompasses 10% of U.S. production. Next year that number is expected to reach 11% of production.

That’s a sharp contrast to 2007 when only 5% of U.S. production was exported.

Hurt said finished cattle prices are expected to trade in the low-$120s per hundredweight for the rest of the year and increase slightly through the winter. He expects record-high annual prices for 2012 averaging in the low-to-mid-$120s, compared with the current record of nearly $115 in 2011.

“The high level of September calf feedlot placements was a demonstration that corn futures prices below $6 per bushel was too low and created opportunities for end users, such as cattle finishers, to lock in favorable financial returns,” Hurt said. “It is the first indication from the animal sector that there is a rebuilding of corn use now due to lower corn prices.”

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