Extension Communications
3614 Administrative Services Building
Ames, Iowa 50011-3614
(515) 294-9915
7/21/99
Contacts:
John Lawrence, Iowa Beef Center, (515) 294-6290
Dan Loy, Iowa Beef Center, (515) 294-1058
Tracy S. Petersen, Iowa Beef Center, (515) 294-9172
Grain Farmers Can Market Corn through Cattle to Increase Revenues
AMES, Iowa -- As agricultural commodity prices decline, corn growers can increase their profits by teaming up with custom cattle feeders. Marketing corn through cattle, a practice more than 100 years old, can add as much as 33 cents per bushel to corn.
"When grain becomes this cheap, the opportunity to add value becomes increasingly important," said John Lawrence, director of the Iowa Beef Center at Iowa State University and ISU Extension economist. "By marketing corn through cattle, corn growers can generate revenue, essentially increasing the size of their operations without investing in new resources. It's a way of getting more money out of their crop."
According to Lawrence, corn growers can market corn through cattle by working with custom cattle feeders who provide professional production and marketing management.
In a typical agreement, corn growers deliver their corn to custom feedlots where they own cattle and where the corn is stored. The custom feeder feeds the cattle for a fee, using the corn delivered to the feedlot. The farmer adds value to the corn by realizing a profit when the cattle are sold.
"The farmer doesn't receive payment for the corn at harvest, but for the cattle when they're sold," Lawrence said.
Research by Lawrence and Dan Loy, ISU Extension beef cattle/feedlot specialist with the Iowa Beef Center, indicates that two to three steers can be finished from the production of one acre of corn, depending on grain yields.
The value of corn production equals 20 to 30 percent of the value of the finished cattle -- $120 to $150 per head, depending on corn and feeder cattle prices. A profit of $20 per head adds 33 cents per bushel to the value of the corn.
"In nine out of 10 years, marketing corn through cattle beat the harvest cash price of corn," Lawrence said. "In six out of 10 years, marketing corn through cattle was more profitable than selling corn at the highest monthly cash price of each year."
An alternate arrangement involves corn growers selling their corn on the cash market at the best price they can find and then purchasing corn at a lower price to feed to the cattle.
In addition to the added value, corn growers benefit in other ways. Some custom feedlots can store high-moisture corn, which means corn growers can begin their harvest earlier and reduce drying costs. Cattle in custom feedlots also sell better than those in small operations because larger lots are able to attract more packer bids.
The arrangement benefits feedlots as well, guaranteeing them a steady supply of corn as well as farmers who purchase their service.
Though the concept of marketing corn through cattle is not a new one, it's a concept that is unfamiliar to many corn growers. The practice peaked in the early 1970s, when Iowa cattle producers marketed nearly 5 million cattle from thousands of small feedlots.
"An increase in feedlots in the southern plains and Desert Southwest as well as consistent profitability in grain farming, thanks to government programs, contributed to the decline since then," Lawrence said. "The shift to Freedom to Farm encourages producers to explore ways to diversify their operations, manage risk, and add value to their grain. Adding cattle feeding to the crop enterprise does these things."
"Sixteen years ago, custom feeders were nonexistent in Iowa," Loy said. "Today it's a viable business, and feedlots are located across the state."
The Iowa Cattlemen's Association publishes a Commercial Cattle Feeders Directory. Lawrence and Loy noted that either party can initiate a relationship to market corn through cattle. For more information on marketing corn through cattle, contact the Iowa Beef Center at www.ibc.iastate.edu or (515) 294-BEEF.
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