Steer-Corn Ratio Can be Deceptive

December 8, 2016 09:23 AM

Historically, the steer-corn ratio provided a snapshot of whether conditions were favorable for feeding cattle. A few years ago a steer-corn ratio of 20 or higher generally suggested feeding cattle was a good opportunity.

Although never a favorite tool for market analysts or futures traders, the steer-corn ratio has lost even more luster as volatile prices for grain and livestock have produced wild swings in the ratio.

Simply stated, the steer-corn ratio is the number of bushels of corn it takes to equal the value of one-hundredweight of fed steer. This ratio divides the price of cattle ($/cwt) by the price of corn ($/bushel). Using this formula, a 1,000-pound steer worth $1 per pound and corn at $2 per bushel would yield a steer-corn ratio of 50. Raise the price of corn to $5 per bushel, and the steer-corn ratio drops to 20.

Therefore, with steers worth about $114 this week and corn at $3.10 per bushel, the steer-corn ratio is about 36.77. Given the old rule-of-thumb that suggests 20 or higher to be favorable, today’s cattle feeding enterprise should look promising. That’s confirmed by this week’s Sterling Beef Profit Tracker which estimates average feedyard profits are about $92 per head.

Recent history, however, suggests the steer-corn ratio has been deceptive. For instance, in early 2013 when corn prices were at a peak, the steer corn ratio ranged from 17.8 to 18.2, accurately suggesting conditions unfavorable. Compare that with late 2015, when cattle feeders were losing money at historic levels, and we see steer-corn ratios ranging from 34 to 40, a suggestion that conditions were favorable when reality produced disastrous results.

What can cattle feeders determine from today’s steer-corn ratio? Cattle feeders are finally making a modest profit this fall, but 2016 has generally been a tough year. The steer-corn ratio has been in the range of 33 to 38 for all of 2016, suggesting conditions were better than how they played out. 

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