August 20, 2004

Record US Corn Crop Forecast Welcomed By Feedlots
 

The United States Department of Agriculture (USDA) August crop production forecast of record production and yields will be welcome news to US feedlot operators, particularly as current feeder cattle prices are at record highs.  

The USDA has forecast corn production for the 2004/05 marketing year (September to August) at 10.9 billion bushels, up 8% from last year and 22% above 2002.  An expansion in acres planted and record yields of 148.9 bushels/acre accounted for the increase.   

As a consequence of increased corn supplies, corn farm prices are forecast to be US 25 cents lower than the 2003/04 marketing year, ranging from US$2.05 to US$2.45/bushel.  US corn prices increased early in 2004, peaking in April at US$3.03/bushel, as supplies on the domestic market tightened with producers capitalizing on higher returns in export markets.

During the period of high corn prices in early 2004, feedlot operators were able to offset the rise in corn by obtaining higher prices for fed cattle. However, with record feeder cattle prices, the prospect of lower corn prices will provide some compensation on input costs.  US feeder cattle prices hit a record high this week of US 118.9 cents/lb lwt, with the USDA forecasting feeder cattle prices to range between US 102 cents and US 108 cents lwt for the fourth quarter of 2004. 

The high feeder cattle costs, relative to fed cattle, will limit feedlot purchases, with the USDA expecting cattle on feed inventories to decline from year ago levels in the US autumn and for the next couple of years.  The reduction in inventories will limit US beef production which is forecast to fall to 11,045 million tons in 2005, 7% below 2003.