With all the rain in July, things are looking a little more optimistic for wheat and stocker cattle operators than in the past four years in the Rolling Plains of Texas, according to AgriLife Extension specialist Stan Bevers.
“It looks like we will have some pasture once we get our wheat crop in; at least we have some moisture to plant our wheat on,” said Bevers. And that leaves wheat and stocker cattle operators with some decisions to make in the next few months. “What we are looking at now is, ‘Should I try to harvest for a wheat crop next spring, or should I run cattle through the entire season?’”
While little to no corn is grown in the Rolling Plains region, the corn market has a big impact as it is the intersection between cattle and wheat, the two largest commodities of the region. “Right now we have a very large corn crop growing out there, which looks like it will influence wheat prices to the lower side,” he said. “So that’s kind of a dark cloud hanging over wheat. And we have to ask ourselves what will prices be come spring next year. It certainly appears that it is going to be lower than the last few years.”
Bevers said the Aug. 10 corn report reported the largest corn crop in history at 14 billion bushels. If the price is to start moving up, it will be after that. On July 29, the July 2015 wheat contract price was $6.30 a bushel. Adjust for local basis and the local price is between $5.75 and $6.
“What are your expenses per bushel – about $6 a bushel, depending on yield average,” he estimated. “So there are a couple of options to look at when it comes to the wheat crop we are about to plant.”
One option for the Rolling Plains is to graze stocker cattle on wheat pasture for a portion of the year. The problem with that is stocker cattle are very expensive right now. Cattle as a whole are in very short supply, so producers must understand they are going to have to pay very high prices.
So an option for producers is to take cattle in “on the gain.” The next decision is what should the lease price on wheat pasture be. Bevers said wheat producers want all they can get and stocker operators want to pay as little as possible. The wheat guy needs enough to make him whole again, knowing he will lose bushels to grazing and have some increased expense.
From the wheat producer standpoint, the things that come into the equation are 5-6 bushel loss per acre, a heavier seeding rate and added fertilizer, which averages out to about $11 per acre.
The stocker operator has to determine the maximum he can pay by looking at everything except pasture costs. “Using the numbers we have now, the average is about 62 cents per pound of gain,” Bevers said. “That’s what a wheat producer and stocker operator would need to negotiate as the mid-point to start the bidding, and that number could go as low as 55 cents or as high as 64 cents.”
So this becomes a lease negotiation – 62.2 cents would be a meet-in-the-middle type of situation. Of course, everyone needs to run their own numbers and all of this changes on a daily basis. But bottom line, at least this year we have some moisture to think about.