The El Nino weather pattern this winter and a wet spring have made for favorable grazing conditions throughout most of the country, but concerns about the Midwest corn crop could put feeder cattle and calf values at risk, a market analyst says.
Wet weather and flooding in the Corn Belt have delayed corn planting. Planting progress is the slowest on record, and poorer yields and some loss of corn acres are expected, Patrick Linnell, a CattleFax market analyst, said in a new cow-calf webinar.
Corn futures prices have already moved higher, he told Capital Press.
Those futures have traded in the range of $3.50 to $4 per bushel for several years. But flooding in the Corn Belt has raised concerns, and December corn futures have gone from $3.72 in early May to $4.35 as of May 29, he said.
“That’s almost 20 percent in a matter of a couple of weeks,” he said
The next breakthrough level would be $4.50 to $4.55 and then on up into the $5.15 area, he said.
“The next few weeks will be really critical to understanding acreage, planting, yield and our expectations on whether this is something that’s going to be impactful to the cattle market here going forward,” he said during the webinar.
A rise in corn prices would increase the cost of gain for feed yards, he told Capital Press.
That could prop up fed cattle prices to incentivize feed yards to place more cattle, supporting values for feeder cattle and calves. On the other hand, an increase in cost of gain could pressure feeder cattle and calf prices, he said.
There’s an upside, but it usually presents more risk for feeder cattle prices, he said.
“More than likely, the negatives of the cost of gain will outweigh the rise in fed cattle prices,” he said.
August feeder cattle futures have been flat at about $142 per hundredweight, where seasonally the market should be going higher into summer, he said.
“With the surge in the corn market, it’s gone nowhere,” he said.
If the corn market relaxes and feed yard demand is good, the August feeder cattle contract could reach the upper $140s, he said.
On the supply side, the number of feeder cattle outside feed yards on April 1 was slightly above year-ago levels.
The cash feeder cattle market has a really strong seasonality to rally higher into the summer to the mid to upper $140s, he said during the webinar.
If the February fed cattle futures end up stronger or the corn market retreats, cash feeder cattle prices could get into the low $150s for a high in that market.
With good moisture conditions, summer-grazing yearling operators have some ability to wait to market those cattle until they see a price they like or are accepting of, he said.
“But at the same time, feedlots are also full ... so that will be somewhat restrictive on the other side as well,” he said.