BROOKINGS - Prior to the corn price spike in 2007, Texas, Oklahoma, and Kansas typically placed about 52 to 53 percent of all U.S. cattle placements from October through June, said Darrell Mark, Adjunct Professor of Economics at South Dakota State University in his recent iGrow.org Cattle & Corn Comments.
"These months include placement of the majority of the annual fall calf crop," he explained. "South Dakota, Iowa, and Nebraska generally accounted for 24 to 25 percent of placements before 2007."
Mark says that after the initial corn price spike in 2007 and rapid adoption of feeding ethanol coproduct feeds, placements in the Southern Plains states fell to 50 to 51 percent while the Northern Plains states increased placements to 27 to 29 percent of all U.S. cattle placements.
"The Southern Plains drought in 2011 accelerated this trend towards more feeder cattle being placed in the Northern Plains and less in the south. In fact, from October 2011 through June 2012, Texas, Oklahoma, and Kansas placed less than 48 percent of all cattle placed on feed and Iowa, Nebraska, and South Dakota placed more than 31 percent," Mark said. "For last fall's calf crop, the Southern Plains states have placed less than 46 percent of total placements while the Northern Plains states have increased its proportion of total placements to over 33 percent."
However, in March 2013, Texas, Oklahoma, and Kansas placed 54 percent of all cattle placed in 1,000-plus head capacity feedyards, up from about 46 percent during January and February. Meanwhile, placements in South Dakota, Nebraska, and Iowa dropped from about 32 percent to about 26 percent.
Why did the geographic placement pattern change so dramatically in March?
"A couple of factors likely contributed to the change," Mark said. "First, the proportion of placements in the Southern Plains was lower than normal in March 2012 as a result of the lingering 2011 drought in that area. Thus, a comparison to March 2011 makes the increase to 54 percent of total placements this March look large. Still, though, the Southern Plains placed more of the national placements in March this year than is typical and the Northern Plains placed less than normal."
Mark said two market conditions could potentially be driving this: a) lower relative feed prices in the Southern Plains than in the Northern Plains, and b) higher slaughter cattle prices in the Southern Plains than in the Northern Plains.
Using the difference in corn price between Omaha, Nebraska and the Texas Triangle area as a proxy for feed costs, he explained that this north/sound corn price spread generally increases in absolute value when corn prices are high and transportation costs are high.
From July through November 2012, the north/south corn price spread put Texas corn prices from $0.24 per bushel to $0.37 per bushel higher than Omaha prices. Since December 2012, the spread has decreased to less than $0.15 per bushel each month. In March, the corn price spread was less than $0.08 per bushel, about $0.04 per bushel less than the previous month and March 2011.
"So, the smaller price difference between the Omaha, Nebraska corn price and Texas Triangle corn price means that the Northern Plains has less cost of gain advantage than it did previously," he said. "Small corn production in the Western Corn Belt, strong basis levels, and lower transportation costs contributed to the smaller price spread since the beginning of the year."
Mark says fed cattle prices is another factor which has likely impacted the increase in Southern Plains feeder cattle placements during March.
He said that from September 2012 through January 2013, this slaughter cattle price spread was close to -$0.75 per hundred weight, meaning that slaughter cattle prices were higher in the Texas/Oklahoma market than in Nebraska.
"While the north/south cattle price spread jumped to +$0.88 per hundred weight in February 2013, it dropped back to +$0.39 per hundred weight by March 2013," Mark said. "So, with the slaughter cattle price spread smaller in the last seven months than in 2011 and early 2012, the Northern Plains has less of an advantage in feeding cattle."
The changes in this fed cattle price spread are driven by cattle on feed and marketings numbers in the respective states as well as available packing plant capacity. In the last few years, the Southern Plains has been feeding fewer cattle and thus not utilizing as much packing plant capacity, whereas the Northern Plains states had been placing more cattle on feed (as discussed above) with some small increases in packing capacity.
Mark said the extent to which the March 2013 geographic placement pattern is an emerging trend or an anomaly is yet to be seen.
"Whether or not South Dakota and surrounding states regain cattle on feed inventory will be highly dependent on corn prices this summer and fall - which of course is dependent on the weather during the crop growing season," he said.
To learn more and view Mark's past Cattle and Corn Comments visit, iGrow.org.