With tight feeder cattle supplies, feedyards, stocker operators and their order buyers want calves that will perform well on feed. And many feedyards are just looking for faces at the bunk in order to keep their pens full.
They count on sale barns and video and Internet auctions to find many cattle. They also work directly with ranchers who they know will send them a quality calf crop. That’s where forward-contracting can take the sting out of volatility.
“Buyers want to capture a supply,” Murphy says. “Even though smaller producers may not be able to contract a full load, they can look for a split supply with others to help establish a forward contract.”
Of course, large facilitators, like Superior Livestock Auction or Western Livestock Auction, provide video sale services in which producers can show their calves to a host of potential buyers for a specific delivery date.
Forward-contracting for later delivery provides a marketing advantage, adds Tom Odle, a Superior consultant. “We sell a lot of calves 4-6 months out,” he says. “It’s a tremendous tool for the cow-calf man. It’s the only true hedge in the cattle industry. It’s a hedge on the current market for a forward contract without a margin call or other investment.”
A new branch of Consolidated Beef Producers (CBP), Canyon, TX, is expanding the ability of ranchers to market a calf crop. It’s called FeederCattleListings.com. “For cattle sellers, we put cattle in front of more than 200 buyers with more than 4 million head of feeding capacity,” says Casey Bradshaw, CBP member services manager, describing the marketing service.
Diersen says there can be drawbacks with any marketing program. Once an LRP plan is established, for instance, a producer is locked in, whereas an options or futures program can be exited. And forward contracts may see the sale price much lower than the current market.
But even though profits are still projected for calves, it’s important that some sort of risk management is used to protect return on investment. “Volatility is just too high to ignore,” Diersen says.
For more on LRP insurance, go to livestockriskprotection.com.
Larry Stalcup is a freelance writer based in Amarillo, TX.
You might also like: