Kub’s Den – Cows More Profitable Than Corn Under Which Circumstances?

Originally published on 6/14/23 by DTN at Cows More Profitable Than Corn: Under Which Circumstances? (dtnpf.com)

Projections for annual cow-calf returns to reach in the hundreds of dollars per head in 2023 and 2024 are enough to make a person sit up and start shopping around for heifers. But is it enough to make someone dig out their old seed drill and replant some quarters to grass? Recall how producers tore up sod and converted grassland to cropland during the ethanol boom of the late 2000s (https://www.pnas.org/…) — is it time for the reverse to occur?

Steers coming through sale barns in Nebraska and South Dakota this month at about 600 pounds are reliably seeing prices above $260 per hundredweight, and the strong futures market through the end of this year suggests that by the time this spring’s calf crop hits the sale barns later this year, they too can expect favorable prices.

For argument’s sake, let’s say each calf’s value will be $1,560 (600 pounds times $2.60 per pound), but raising them requires $961 in annual cost per cow-calf pair, depending on various assumptions about ownership, interest costs, mineral programs, local grass leasing costs, etc.

That results in a very generous $599 annual profit per pair. Broken out per acre of production, the way corn or soybean budgets present their economic situations, this is equivalent to $101.83 in profit per acre, assuming we’re looking at a region where it takes about 5.88 acres to stock each beef cow-calf pair for six months (0.17 pairs per acre, or about 27 pairs per standard 160-acre quarter-section pasture).

The density at which you can stock cattle on grassland varies greatly across the United States, from as few as 2 acres per beef cow in the Northeast and Lake States to sometimes as many as 50 acres per beef cow in the western Mountain states. Land values vary accordingly, so the profitability estimations made here shouldn’t be considered representative of every cattle operation everywhere.

However, it’s this “transitional” Cattle Country region that’s particularly interesting (using 5.88 acres per pair), because this is characteristic of the places with a climate and soils that can justifiably go either way — to crop production or pasture grazing.

For instance, think of places like Walworth County South Dakota on the east side of the Missouri River, for instance, or Sheridan County Nebraska with both farming and sandhills topography, or the rolling hills of Johnson County Missouri. These are all places where, depending on a given field’s attributes, the land could be deployed either to stocking beef cattle at roughly this rate, or potentially growing 150 bushels per acre (bpa) of corn or 39 bpa of soybeans.

There is a broad swath of Cattle Country that has faced this choice over time — to enlist the land into producing either crops or cattle. Should these fields grow corn on somewhat marginal ground, requiring investment in expensive machinery and inputs? Or should they grow beef animals on grass, requiring investment in barbed wire and labor?

It’s finally this year — when the cattle supply has been squeezed so low by drought — that the math really starts to get interesting, because most crop prices also remain relatively favorable. Let’s see how they stack up in this example region:


155.5 bpa at $4.83 new crop cash bid = $751.07 revenue this fall

PROFIT: $57.94 per acre



38.6 bpa at $11.48 new crop cash bid = $443.13 revenue this fall

Minus $413.01 cost of production per acre

PROFIT: $30.12 per acre



63.4 bpa at $7.40 new crop cash bid = $469.16 revenue this summer

Minus $615.30 cost of production per acre

LOSS: -$146.14 per acre



0.17 pairs per acre at $1560 per calf = $265.20 revenue this fall

Minus $163.37 cost of production per acre

PROFIT: $101.83 per acre


Charts of profitability overlaid on a photo of a red heifer in a farm pasture

Your mileage may vary, and all these assumptions require a lot of wiggle room for real-world productivity. They also don’t necessarily represent reality for farmers in the I-states, where cattle operations may exist specifically to be an outlet for corn, or in the South, where prices may not be as high or drought may drive up forage values, or in the Mountain West, for that matter, where the alternative to pursue row crop production doesn’t really make any sense.

Nevertheless, just about any way you slice it, cow-calf operators are, for once, in the nice position of actually being able to pencil out $100 or $200 or more in profit for each mama cow they care for. Not all grain producers can say the same for each acre they’ve planted in 2023.


Comments above are for educational purposes only and are not meant as specific trade recommendations. The buying and selling of grain or grain futures or options involve substantial risk and are not suitable for everyone.

Elaine Kub, CFA is the author of “Mastering the Grain Markets: How Profits Are Really Made” and can be reached at masteringthegrainmarkets@gmail.com or on Twitter @elainekub

Energy markets spooked by “overpriced” corn

In an extremely challenging market environment for the ethanol industry — when driving demand has fallen 80% in certain regions of the United States and some ethanol customers have declared force majeure to back out of contracts — it’s perhaps not surprising that ethanol producers would, in turn, kick against the prices of their raw materials, especially corn. This was suggested by Green Plains CEO Todd Becker, speaking on Bloomberg TV on April 6, when he declared, “Corn prices are too high” in relationship to crude oil.

After analyzing the relative values of the energy content within a bushel of corn today or a barrel of oil today, I can agree that the price ratio of these two commodities is far out of whack. It’s also clearly unfavorable for ethanol producers, but that doesn’t automatically mean, in my opinion, that corn prices are “too high.” Rather, I think it’s fairly obvious that the proper way to express this mispricing is to point out that crude oil prices are just drastically low amid simultaneous demand and supply shocks.

First, consider that all these commodities contain energy. Usually when thinking about agricultural commodities used in animal feed or human consumption, we think about a calorie (a unit of energy required to raise one gram of water one degree Celsius). Corn has calories (about 100 per ounce), wheat flour has calories and hay has calories. However, the energy industry measures the heat-producing capacity of its commodities differently, in Btus (British thermal units). One Btu is the energy needed to heat one pound of water one degree Fahrenheit. If we express corn’s energy content in Btus instead of calories, we see that No. 2 yellow field corn at 14% moisture contains about 401,000 Btus per bushel. Therefore, a bushel of corn today, at $3.35, is pricing its inherent energy content at $0.008 per Btu. Meanwhile crude oil at $26 per barrel, with 5,705,000 Btus in each barrel, is currently worth only $0.0005 per Btu.

As a ratio, the energy in corn is currently priced at 1.8 times the price of the energy in crude oil. And yes, this price ratio is wildly off from its historically normal value. Looking at the corn-to-crude oil (in cents per Btu) ratio over the past 10 years, we see that corn’s Btus are typically a little cheaper than crude oil’s Btus. The ratio’s 10-year average has been 0.94-to-1. It has never before been this far weighted against corn, reaching a peak of 2.37-to-1 (corn Btus-to-crude oil Btus) last month when the crude oil chart bottomed out at $19.27 per barrel.

If we were trying to arbitrage just these two markets against each other based on just this one factor — the relative values of their energy content for use in refining fuel — we would expect the ratio to eventually snap back to “normal.” That would imply that when crude oil is $26 per barrel, as it is today, corn ought to be $1.72 per bushel or when corn is $3.35 per bushel, crude oil ought to be $50 per barrel.

The most realistic outcome is probably that crude oil and corn ought to persist in an unusual price relationship, for the time being. Crude oil really only has one use — to be used as fuel. Yes, there are byproducts from crude oil refining just as there are byproducts from ethanol production, but the energy in crude oil can really only be used in engines. When those engines suddenly go idle during the COVID-19 pandemic, and at the same time global crude oil supplying countries willfully overproduce the commodity, then the market price of that commodity obviously experiences a profound drop.

Corn, on the other hand, will always have some inherent value even if there was never another gallon of ethanol ever produced in the world. The energy in each kernel can be converted in the stomachs of cattle, hogs and poultry instead of in the engines of commuter cars, and that energy will always have some value unrelated to the price of crude oil. The two main global corn markets (the energy market and the feed market) are intertwined by DDG substitutes and the competition between each sector’s basis bids, but the feed market can and will continue to exist no matter what happens to ethanol.

Furthermore, corn isn’t a perishable commodity, such as milk or vegetables, which are currently experiencing such heartbreaking supply chain problems while the routes to willing consumers are shifted during the pandemic. Dry, stored grain like corn can maintain its value for another six months, or eighteen months, or however long it takes for demand patterns to return to normal. There are limits to how much can be stored and for how long before farmers need to convert the commodity into cash or before the next crop (however large it may be) requires the storage space. But for now, the corn market may find it possible to maintain some independence from the energy markets’ poor prospects.

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