When Iowa cattle producers gathered in Ottumwa Feb. 25 and 26 for the 2011 annual meeting of the Iowa Cattlemen's Association, it was at the end of a week when prices for steers and heifers reached record levels. Cash cattle were bringing as much as $112 per hundredweight. While there were good feelings among producers about cattle prices, there was concern, too.

"Cattle prices are up, but costs are also up," says Kent Pruismann, immediate past president of ICA and a cattle producer from Sioux Center. "Producers face more uncertainty than ever as the price of corn, fuel and other inputs move higher. "Consumers are reading about high prices for cattle. But feed and other costs are rising as well."

Those costs include record prices for feeder cattle. Producer Sid Wellman of Bonaparte observes that it's fun to sell a cow for $1,500. But, he asks, do you spend $1.30 a pound to buy a new feeder calf knowing you'll pay $1.10 a pound to feed it and not know what cattle prices will be in a year or so?

Cattlemen will be slow to rebuild the nation's cow herd

Referring to the present 52-year low in the size of the U.S. cattle herd, Wellman believes cattlemen will rebuild their herds. "You hear some producers say they're starting to hold back heifers for breeding instead of selling them on the fed cattle market," he says. "But it'll take time to expand the breeding herd and supplies of beef will get tighter yet."

Cattle supplies and herd sizes help determine the price of beef at the grocery store. Demand for beef has also been strong, bolstered by a 30% increase in exports of U.S. beef. That's another factor which is adding to the 6.2% increase in the price of meat Americans paid in 2010. Cattle producers are aware of the potential softening of demand that will likely occur if hamburger prices rise another 10% this year.

"If consumer prices rise, then we're going to be picked over in the meat case," says Colin Woodall, the Washington D.C. lobbyist for the National Cattlemen's Beef Association, who spoke to the ICA gathering in Ottumwa.

NCBA is against renewing federal tax credits for ethanol

The 25% rise in cattle prices combined with moderate corn prices during the first half of 2010 helped cattle producers toward their first profitable year since 2007, notes Woodall. But since June the price of corn has doubled. The costs of hay and diesel fuel are up considerably, too. Corn and cattle have always competed with each other for financial balance, but in recent years the price of corn has become an increasingly bigger factor as supplies of corn have tightened due to increased demand for corn.

Woodall reiterated the National Cattlemen's Beef Association's position against renewal of tax credits for ethanol, a position that has become sharpened by recent statistics showing more than one-third of the U.S. corn crop and 60% of the Iowa crop going to ethanol production. USDA statistics show how ethanol production has played a major role in the tightest corn stocks in the U.S. since the mid-1990s, and cattle producers don't like this situation.

Higher corn prices are hastening the exit of small feeders

Higher corn prices are causing other changes in the cattle industry. More producers who have smaller feedlots are getting out of the business in Iowa. A half century ago Iowa was the nation's largest cattle feeding state but smaller cattle operations are now plowing up pastures and feedlots for more row crop cultivation.

"We've lost a lot of the little feeders, the 25-head to 50-head guys, who just couldn't make it and gave up," says cattle producer Butch Neumeyer of Walker in Linn County, a 46-year veteran of the cattle business.

The result has been a thinning out of what was once the nation's leading cattle herd in Iowa of 7 million head to about 3.8 million today. There are about 23,000 cattle producers remaining in the state. But Iowa, with its huge amount of corn production, still is a place to feed cattle, says Story County cattle feeder Bill Couser. "Iowa is where cattle should be fed," he states. "There should be a steer in Iowa for every acre of corn that is planted."

With more than 12 million acres of corn planted in Iowa last year, that's a tall order. "But with the large amount of distillers grains available today as a feed product from the ethanol industry, that can help replace a considerable amount of the higher priced corn in a ration," he notes.

Despite higher feed costs, livestock business still has a future

"With record and near record cattle and hog prices, it's a pretty good time to be in the livestock business in Iowa," says Bill Northey, Iowa Secretary of Agriculture. He also addressed the ICA annual meeting at Ottumwa. "Sure, there are challenges with high feed costs," notes Northey. "But if you can get $80 per hundredweight for hogs as a live price, or $100 as a carcass price, and $170 to $180 a hundredweight as a carcass price for cattle, those are great prices."

What does Northey see for corn acreage in Iowa in 2011? Will it increase? "Corn and soybean prices are high this winter, as we are going into spring," he adds. "Who knows what the prices will be at harvest? But you now have a chance to be able to market your crop ahead of time for some pretty good prices this year. The numbers will work. You can cash flow. The amount you can exactly make depends on what your input costs are and how much you are paying for cash rent. But these current numbers work in a cash flow budget. Some years they don't work, but they do this year."

Northey adds, "USDA says we may not get as many planted acres for corn this spring in the U.S. as we originally thought we would. What's going to happen in Iowa corn and bean fields this spring? I think we'll see a lot of the same split. In Iowa we normally plant about 13 million acres of corn and about 10 million acres of soybeans. That's around 23 million total acres of corn and soybeans."