Corn Basis Factors

This year’s increases in calf and feeder cattle values have seen prices increase in the range of $25 to $45/cwt. over 2021. This major shift likely doesn’t entice cow/calf producers to consider retained ownership for the first time. Even though prices have been exceptional for calves and feeder cattle, it’s telling to take a look at feedlot breakeven projections to understand where prices are originating.

We could argue the details with regard to ration costs, but for argument’s sake let’s reference the latest Kansas State “Focus on Feedlots” report for a baseline. The August report suggests cost of gain projections for cattle placed on feed last month averaging $128/cwt. for steers and $137/cwt. for heifers. Participating feedlots reported a wide range of projections with a $21/cwt. range for steers and $9/cwt. range for heifers.

Plugging in these Kansas cost of gain projections against Live Cattle futures contract values for the proper timeframe for finishing cattle provides a handy starting point to calculate breakeven purchase price for cattle feeding. The same simple math serves as a decision tool for cow/calf and stocker operators with regard to selling cattle versus retaining ownership.

However, the Kansas data doesn’t apply equally across feeding regions due to differences in regional feed costs. Perhaps not widely considered outside of the feedlot sector are the changes occurring in corn basis across regions in the past few years. Corn basis (the difference in local cash corn price versus corn futures price) has become more varied with heavy increases in the western portion of the central U.S. cattle feeding region.

Another K-State reference tool, the Corn Basis Map from the AgManager.info site, depicts these differences. Note the dark blue areas in western Nebraska, eastern Colorado, and western Kansas down through the panhandles of Oklahoma and Texas. Feedlots in these areas have seen higher corn costs historically due to proximity to the corn belt. However, the additional map displaying the August 2022 deviation in basis from the prior three-year average shows acute basis changes this year for those areas

While feed basis is key to cost projections, this factor is not the singular determinant for profitability. Climate, freight differentials for cattle, risk management, cattle marketing techniques and overall feedlot management are key components. None of these pillars can stand on their own but it’s important to understand what factors can impact cost projections within a relatively small region. This is especially informative to those initially considering retaining ownership to capture genetic advantages of their calves through feedlot performance and carcass quality.