High feed prices continue to impact the cattle sector of our agricultural economy. Feed costs and the large total cattle inventory have been important factors in calf and yearling prices over the last months. In the short-run, the feed situation will probably remain rather tight for at least the next crop year (1996-97). In the longer-term the era of government supported grain prices is over. This means greater variability in grain prices. Cattlemen should expect to see greater volatility in their feedgrain supplies and prices under the new farm bill.

Feedgrain prices have already achieved record levels this crop year. The national average corn price for March was $3.54 per bushel. Corn prices paid to crop producers in the Carolinas have ranged from $4.00 to $5.90 per bushel since March. To livestock feeders, this translates to a purchase price of over $6.00 per bushel. At these levels someone needs to "shoot up amongst us and give us some relief."

Can the crop planted in 1996 come to our rescue? The USDA planting intentions report, released in late March indicated that farmers intended to plant 79.9 million acres of corn, up 12 percent from last year and the largest planted acreage since 1985. Given price increases and farm program changes since the survey was made, corn plantings may increase further. Many expect a true corn plantings number to exceed 80.5 million acres.

A key to price trends in the future rests on the size of the US crop. We're certain of the increased acreage, but what will our yield be this year? National average yields have proven to be highly variable over the past decade. Since 1985, US corn yield has ranged from a low of 84.6 bushels in 1988 to a record high 138.6 bushels in 1994. Currently USDA is projecting a 1996-97 national average yield of 126 bushels per acre (11 bushels over the decade average of 115 bushels per acre) which would indicate production of about 9.4 billion bushels. That would be the third largest crop in U.S. history. But, strong use in the feed and export sectors may likely continue to keep stocks historically tight. In fact, it may be difficult to push 1996- 97 corn ending stocks above 1 billion bushels unless even larger production comes in. Table 1 explores the impact of various yields on ending stocks. Under short or average crop conditions, we will find supplies tight. (Note: The low yield carry out of -784 million bushels will not happen. Rather prices will respond dramatically to ration use of the extremely small supplies.) It would take a national yield of 130 bushels plus to get us back into the "more comfortable" one billion bushel carry-over zone.

Planting intentions for other feedgrains also were up over last year. Farmers said they intended to plant 10.6 million acres of grain sorghum, up from 9.5 million acres in 1995. That would be the largest grain sorghum acreage planted since 1992. Texas producers accounted for most of the increase, 800,000 additional acres. Most of these acres may be coming out of cotton. Oklahoma and Kansas producers accounted for another 100,000 acres each. But, more rain will be needed in the Southern Plains to get any crop grown. Most of the 553,000 acre increase in barley acres were in North and South Dakota and Washington. Total plantings of 7.2 million acres would be the largest barley crop since 1993.

Producers indicated that they intend to harvest 59 million acres of hay in 1996. This would be about 740,000 acres less than in 1995. If true, fewer harvested acres will combine with tight feed grain supplies to keep hay prices historically high. Most of the intended hay acreage reduction was reported in the West. Harvested acres were reported down 410,000 acres form a year ago in the 11 Western states. In the South, Arkansas and Mississippi producers reported intentions to harvest an additional 100,000 and 75,000 acres compared to a year ago, respectively. Kentucky, Tennessee, and Georgia producers indicated no acreage change from 1995.

The up-shot of all this? First, feed prices could easily go much higher in 1996 (even though they're already painfully high). Conclusion #1: Protection against higher prices is a must for feeders! Second, if mother nature cooperates to give us a 1994-style bin buster corn crop, prices could fall into the $2.50 range quickly by this fall. Conclusion #2: Leaving open the "bottom" to benefit if feed prices fall is desirable! Finally, purchasing call options are the most effective way to handle this "two-tailed" price dragon. GLOBAL CONCLUSION: Look into buying call options to establish a maximum buying price on your feed needs and leave open the possibility to benefit from lower prices if they come. It's a new world out there in the grain markets. We need to get serious about wisely managing the risks inherent in this "New World."

Table 1: U.S. Corn Supply & Utilization Projections, 1996
        at Various Projected Yields
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                 Low Yld.   Avg. Yld.   Hi Yld.     Proj. 
  Item (Units)     1996       1996       1996       1996  
                  (96-97)    (96-97)    (96-97)    (96-97)
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  Setaside (MA)        NA         NA         NA        NA 
  Planted (MA)       81.0       81.0       81.0      81.0 
 Harvested (MA)      74.4       74.4       74.4      74.4 
                                                          
  Yield (bu/ac)     105.2      118.2      131.3       126 
                                                          
  Carry In (MB)       317        317        317       317 
 Production (MB)    7,829      8,797      9,766     9,375 
Total Supply (MB)   8,156      9,124     10,093     9,702 
                                                          
    Feed (MB)       5,150      5,150      5,150     5,150 
Food, S & Ind. (M   1,690      1,690      1,690     1,690 
  Exports (MB)      2,100      2,100      2,100     2,100 
  Total Use(MB)     8,940      8,940      8,940     8,940 
                                                          
Ending Stks (MB)     (784)       184      1,153       762 
 Stks to Use (%)       -9%         2%        13%        9%
                                                          
  Price ($/bu)         NA         NA         NA     $2.90 
                                                          
    Loan Rate          NA         NA         NA     $1.89 
 Price/Loan (%)        NA         NA         NA       153%
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Source:  USDA, WAOB, WASDE-314, May 10, 1996