Originally Posted By: MNgopher
I was going to write a decent rant on corn and beef pricing, but then decided I'd be wasting my time.
The reality is that corn pricing is an important factor in beef markets, whether some will admit it here or not. Yes, corn and beef are two different commodities sold on their own markets that the producer has little control over. But when one commodity is the basic ingredient of the feed that is the biggest expense for a basic feedlot cow, arguing that that two have no relationship to each other doesn't hold a lot of water. True, the two move separately, but often the driver of the beef pricing is the price of the feed. Ignoring that is foolhardy...
Beef prices are a commodity driven market. Corn could be $3.71 as it is now, or $100. The price the beef producer gets on the hoof is what the market will pay. Now the producer may either make a profit or loose his shirt. And you just can't hold back selling stock until the price gets to where you want it. The beef market pricing is based on different grades of cattle, and the price is not nearly as good for older stock than prime feeder stock, and those are generally sold at around 15 months of age. Almost all livestock.... beef, pork, poultry... are contract raised and sold. It is not up to the actual producer. Contract livestock are moved to market at the contract specified time. Whatever the market will pay for them, that is what it is. It has nothing to do with what it cost to feed them till then.
Now true, corn price has a long term effect, in that if the beef producer is losing his assets raising them, he will cut back on beef that he is raising, as will others. As the numbers of cattle are reduced, the market prices will go up. It would take 2 years to get to a good price point. Now the beef price is profitable. So now, more producers breed more stock. So in the mean time, the price is high, they make a profit, your burger at McDonald's goes up. And as beef producers then pump up the number of head they are raising to take advantage of the high price, the consumer is backing off of beef purchases, and now we have the cycle returning to a low beef price again. Trying to find and equilibrium is tough, even for experienced economists.
But given that corn prices are lower, on an inflation adjusted basis, than they were in the mid 1990's, the whole feed argument costing producers is pretty moot. Corn prices now have virtually no relevance to livestock cost to produce in relation to the pricing currently around $130 a hundred weight on the hoof. At this time in 1995, the live cattle market was around $66 a hundred weight. So while the live cattle price has doubled, the corn price has remained flat. So the contention that corn prices have a great effect on livestock pricing is moot.