By Andi Anderson
The cattle market has been strong in recent years, with rising prices due to tight supplies and strong demand. However, price fluctuations have also occurred, highlighting the importance of risk management strategies for cattle producers.
Even in a bull market, price drops happen. Over the past 26 months, feeder cattle futures prices have surged from $180 to $260 per cwt but have also experienced significant declines.
Recent drops were influenced by Mexican live cattle imports, trade concerns, and Avian Influenza. Past downturns saw losses of $40 per cwt from September to December 2023 and $30 per cwt from May to September 2024, impacting producer returns.
To manage price risks, producers can use several strategies:
- Forward Contracts: A simple method where buyers and sellers agree on a set price before delivery. This locks in prices and reduces uncertainty but still requires meeting contract specifications.
- Futures and Options: Short futures positions help manage price declines but require careful planning for margin calls. Put options act as price floors, allowing producers to sell at a minimum price.
- Livestock Risk Protection (LRP) Insurance: Works like put options but is more flexible for small operations. LRP has improved with increased subsidies and delayed premium payments, making it more accessible.
No single risk management tool is perfect, but having a plan in place protects profits and minimizes losses. While the cattle market remains strong, price risk is always present, making strategic planning essential for producers.
Photo Credit: gettyimages-ahavelaar
Categories: Ohio, General