Oklahoma and Texas cattle producers could be facing lower prices for their calves in 2007.
With corn prices increasing from the $2 to $2.50 per bushel range to upwards of $4 during 2006, Steve Swigert, an agricultural economist with The Samuel Roberts Noble Foundation in Ardmore, Okla., is advising cattle producers to prepare for decreased profits.
“For every 25 cents per bushel increase in the price of corn, calves are worth about $6 less per hundredweight,” Swigert said. “That means a 500-pound calf would be worth $30 less.”
Estimates worsen when based on the more than $1 per bushel increase in the price of corn during fall 2006 alone. Based on that rate of increase, a 500-pound calf would be worth $120 less per head.
“Corn prices could be in the $3 to $4 range, so we could expect the price of 500-pound calves — with a fed cattle market in the mid-$80 range — would be about $90 per hundredweight to $115 per hundredweight,” Swigert said. “Prior to the price of corn going up, 500-pound calves were worth $120 to $130.”
The reason for the increase in corn prices has been widely credited to the anticipated additional usage of corn by ethanol plants in 2007. Currently 107 ethanol plants are in production with 46 more plants expected to come online during the upcoming year.
“From the tax credit the ethanol plants receive, they can justify paying $4.74 for a bushel of corn if oil is at $70 per barrel. They have a significant incentive to continue expansion,” Swigert said. “Also, we have a large volume of fund trading in the corn market, causing a lot of volatility in corn futures. Unless we have a 12 billion bushel corn crop in 2007, it doesn't appear things are going to get any better if you are a cattle producer.”
Swigert suggested cattle producers begin planning to run their operations with less income than in previous years. He also said producers should maintain ownership of small grain or other high-quality pastures if they have it.
“Stocker operators and backgrounders must be careful to make their projections realistic,” he said. “There is potential for some significant fluctuations in the market over the next few years. They must begin taking steps now to help counteract any impact of the increase in corn prices.”