What is in this article?:
Hedging has different definitions, whether it’s in the market or in the pasture.
Brad James didn’t need a double major in animal science and ag econ. He’s earned an OTJ (on-the-job) degree in cow-calf production and getting cattle sold at a profit through whatever stage of marketing that works best.
James is a fifth-generation rancher. He and his wife Tammy run about 500 mama cows on ranches in southeastern Colorado near Kim, and in the Oklahoma Panhandle just south of Boise City. The commercial cowherd is Angus and Angus-cross. In many cases, calves are retained, run on grass with a supplement to 800-900 lbs., and then fed-out at a commercial feedyard. And with fed cattle prices where they are this spring and early summer, he is likely to use futures contracts to get a lofty price protected.
“We have good cattle genetics and they normally work well in the feedyard,” James says. “With hedging, I can often lock in a profit.”
For yearlings that will go on feed this summer, he is eyeing October and December live cattle futures, which were in the $135-$140/cwt. price range. He’ll make the decision when to pull the trigger based on a formula, or “formation” he follows.
“It’s called the ‘one, two, three formation’ and one I have studied and used in the past,” James says. “In this strategy, I look at a price I like for more my situation. When the market hits that price, then drops, then goes back up again, I put on a ‘stop.’
“If the market breaks below that number, the stop price is set and I am hedged. That formation has worked for me and usually provides a price I can live with.”
Like others, James would like to hit the top of the market every time. He knows that’s unlikely. “I try to hit somewhere within the top third,” he says, “whether it’s through feeding them out or selling them as stockers.”
He is hoping to wait until July to place cattle on feed and use the December futures contract. “It will depend on whether we get any rain to boost our grass,” he says. “The early spring has been extremely dry. We’ll just determine how much supplemental feed we’ll need before it’s time to put the cattle in the feedyard.”