by Michael Langemeier, Purdue University

Cash corn prices in Kansas were higher than $7 per bushel (bu.) in the first four months of 2023, peaking in February at $7.35 per bu. The average corn price in August, the latest month for which data are available from USDA National Agricultural Statistics Service (NASS), was $5.70 — 22% lower than the average corn price in February. At the time of this writing, corn futures prices for 2024 range from $5.00 per bu. to $5.20 per bu. Thus, corn prices are expected to remain less than the levels experienced in the last couple years for the foreseeable future. This article examines the effects of lower corn prices on feeding cost of gain for cattle finishing.

Feeding cost of gain

Feeding cost of gain is sensitive to changes in feed conversions, corn prices and alfalfa prices. Information on these items is available from monthly issues of the Focus on Feedlots newsletter. Fig. 1 illustrates feeding cost of gain from January 2013 to August 2023. In August 2023 corn and alfalfa inventory prices were $7.04 per bu. and $273 per ton, respectively. After averaging $125 per hundredweight (cwt.) in 2022, feeding cost of gain averaged $147 and $145 per cwt., respectively, for the first and second quarters of 2023. Feeding cost of gain in August was $141.83. It is important to note that since this estimate was made, corn prices have continued to decline.

Feeding cost of gain for the first six months of 2024 is expected to range from $103 to $112 per cwt.

Feeding cost of gain for the rest of 2023 was estimated using early October projections of corn and alfalfa prices and seasonal average feed conversions. Because feeding cost of gain is computed using corn prices from the time cattle are placed to the time they are sold, corn prices experienced earlier this year will affect feeding cost of gain for the next several months. With this in mind, feeding cost of gain for the third quarter of 2023 is expected to range from $134 to $143 per cwt., with the highest cost occurring in July. For the fourth quarter, feeding cost of gain is expected to range from $115 to $130 per cwt. Feeding cost of gain for the first six months of 2024 is expected to range from $103 to $112 per cwt.

Is it possible for feeding cost of gain to drop below $100 per cwt.? The answer is yes, but this is not likely to occur unless the corn price this fall and winter drops to less than $4.50 per bu.

Sensitivity of feeding cost of gain to changes in corn prices

To determine the sensitivity of feeding cost of gain to changes in corn prices, alfalfa prices and feed conversion, a regression using data for the last 10 years was estimated. Results are as follows: each 0.10 increase in feed conversion increases feeding cost of gain by $1.33 per cwt., each $0.10-per-bu. increase in corn prices increases feeding cost of gain by $0.96 per cwt., and each $5-per-ton increase in alfalfa prices increases feeding cost of gain by $0.53 per cwt. To more fully understand the effects of feed conversion, corn price and alfalfa price on feeding cost of gain, we computed coefficients of separate determination (Langemeier et al., 1992). These coefficients can be used to measure the influence of each independent variable upon the dependent variable. The sum of the coefficients of separate determination for each variable equals the R-square goodness-of-fit measure, which was 0.959 for the feeding cost of gain regression. This goodness-of-fit statistic indicates that 95.9% of the variation in feeding cost of gain was explained by fluctuations in feed conversions, corn prices and alfalfa prices. Computed coefficients of separate determination indicated that corn price explained approximately 76% of the variation in feeding cost of gain.

To further examine the sensitivity of feeding cost of gain to changes in the corn price, let’s use the farmdoc Price Distribution Tool and the March 2024 corn futures contract. The mid-point price is currently about $5 per bu. The 25% and 75% percentile prices are approximately $4.60 and $5.40, respectively. Feeding cost of gain at the mid-point price is $107 per cwt. At the 25% and 75% percentile corn prices, feeding cost of gain would be $103 and $111 per cwt., respectively. This analysis strengthens the argument made above that corn price would need to drop below $4.50 for feeding cost of gain to fall to less than $100 per cwt.

Summary and conclusions

Corn prices have declined substantially since the first half of this year. This article examined the effects of higher corn prices on feeding cost of gain for cattle finishing. Using projected corn prices, feeding cost of gain is expected to decline from $142 per cwt. in August to $114 in December, and then remain in the $103- to $112-per-cwt. range for the first six months of 2024. However, it is important to note that each 10¢ change in corn price results in a change of feeding cost of gain of 96¢ per cwt. Thus, it would not take a particularly wide swing in corn prices to change our projections.

Editor’s note: Michael Langemeier is an associate director of the Center for Commercial Agriculture and a professor in the Department of Agricultural Economics at Purdue University.