Looking for a way to harvest corn earlier and have a consistent market that dodges the middleman and likely pays a nice premium? Call a nearby feedyard. Many such ribeye factories want a reliable supply of high-moisture corn (HMC) to keep the beef machine running.
As a farmer and cattle feeder, Vernon Nelson knows the benefits of HMC as a good cash crop and excellent energy source for cattle. So do Pete and Reed McClymont, who operate a 15,000-head-capacity custom feedyard, as well as a corn and soybean operation at Holdrege, NE.
In fact, Steve Amosson, Texas A&M University economist in Amarillo, says selling HMC to a feedyard can produce an extra 20-25¢/bu.
“I see a 15¢/bu. advantage by hauling HMC to a feedyard,” says Nelson, who farms with his son Chris, and son-in-law Troy Lindstrom. He often sells corn to McClymont and Sons Feedyard, where he also feeds cattle.
Any premium he receives is the same as what the McClymonts pay themselves for HMC they market through their feedyard. “We sell 25-30% of our corn directly to the feedyard,” says Pete McClymont, who runs the cattle end of the operation. “The price is based on a local average price for corn.”
Every week, the feedyard obtains the average bid from a Cargill facility and a local co-op elevator. There is usually about a 10¢ difference. So if one is offering $2.20 and one $2.30, McClymont then will pay growers about $2.25 for delivering HMC.
Payment is broken up based on the amount of corn used by the feedyard. “Before, we paid growers on an eight-month basis,” says Pete. “If a grower sold us what is equivalent to 8,000 bu., he would be paid for 1,000 bu. (per month) over the period. That was later increased to a 10-month charge out. In 2002, we began paying out over the year (a 12-month charge out).
A&M's Amosson says there are bonuses for growers other than any premium they can accrue.
“Any time you eliminate the middleman you are better off,” says Amosson, who works with growers in the Texas Panhandle where some 6 million cattle are fed annually. “By selling directly to a feedlot, you can eliminate elevator in and out costs that easily add up to 20¢/bu. And, you don't have to field dry corn or run the corn dryer to get the moisture down to normal standards.”
Benefits of HMC start before the first check is received. First, corn can be contracted far in advance. A grower knows there is a guaranteed market that may net a premium. HMC harvest can also begin up to four weeks sooner than for No. 2 yellow corn or food corn.
“I like being able to harvest earlier,” says Nelson. “Since corn is delivered at harvest and doesn't sit in storage, there's less shrinkage. I believe there is a 15¢ advantage to selling my corn to a feedyard.”
It can be more, depending on the local basis. The Holdrege corn basis is typically about 30-35¢ under futures. “In 2002, a Kansas feedyard was paying even basis at the same time ours was 35¢ under,” says Nelson. “I wound up selling a lot of corn to that feedyard for a price that was far above my additional trucking costs.”
Reed McClymont, farm manager of the family operation, likes the additional time available for his yellow and white corn harvest.
Pete adds that since the feedyard bought mostly HMC in '03 and planned the same in '04, there is a chance additional corn will be needed from growers.
“We like to bring in at least a 10-month supply of HMC for our silage pit,” he says. “It's a good product for us and is a good market for part of our corn.”
Nelson makes sure he has his corn price protected through futures hedges. “It's good in case there is a major price reduction,” he says. “Also, if cattle prices are too low to pencil out a profit, we have to sell more corn on the cash market. That corn needs to be hedged when there's a good marketing opportunity.”
Reed also markets the family corn and soybean crops. Beside sales to the feedyard, he uses forward contracts and futures. “Since about 45% of our corn is No. 2 yellow and another 20% is white, we have to make sure those crops are marketed along with the HMC,” he says.