Highly sensitive cattle markets should have producers, stocker operators and feeders concerned about managing their price risk, notes Matthew Diersen, South Dakota State University Extension economist.

Volatile cattle markets aren’t signaling that a complete price panic is in order, but cattle markets have taken a hit, dropping to the $140/cwt. range for September and October feeder futures. They had surged to $160-plus before the media stirred up the lean finely textured beef (LFTB) frenzy, and later the skyrocket in corn prices and drought.

A Closer Look: Plenty Of Market Volatility & Road Bumps Ahead

Diersen says cattlemen, whether selling via local auction markets, video sales or feeder or live cattle futures, can’t depend on having good prices when they’re ready to sell.

“The way around this problem is either to spread out sales or selectively hedge the cattle,” he says. “Selling at more than one time may not be practical for smaller producers. Selective hedging may still work if a portion are priced or protected when returns look favorable.”

Diersen says producers and feeders should use USDA Risk Management Agency insurance products and marketing tools, such as forward contracts or futures and options, to spread out or reduce risk.

“While it’s too late in the year for livestock risk protection (LRP) on calves, it may still work well for feeder cattle. Out-of-the-money put options are also an inexpensive way to get a minimal amount of coverage,” he says. “There’s usually no other way to guard against price wrecks. If it’s getting close to sale time and you see a price you like, lock it in for part of your production.”

Diersen says that with high input costs, producers and feeders may consider locking in those expected outlays. “Look at protecting the feed cost side of things,” he says. “Maintain a minimum amount of quality hay if possible. If backgrounding or feeding cattle, the whole feed bill may need to be covered.

“The other alternative to consider this time of year is protecting hay and grazing for 2013. This is the time to buy forage production or similar hay insurance. It is also near the deadline for pasture, rangeland, and forage (PRF) insurance, which can cover either haying or grazing.”

He concludes that when situations like the LFTB incident strike and consumers walk past the beef counter when shopping, it’s a direct impact on beef producers and feeders. “That’s where having a plan to spread your risk to manage a price would be helpful,” Diersen says.

Mistakes to avoid 

David Smith, University of Nebraska-Lincoln professor of veterinary science, recommends producers develop a production and animal health plan to ward off wrecks. He says producers should:

  • Understand the sequence of disease and the recovery times of common diseases and reasonable outcomes.
  • Have a written plan for when cattle arrive and face environmental changes.
  • Commit enough time to observe and handle cattle. 
  • Let cattle get to know the people who care for them.
  • Select appropriate high-quality vaccines, medications and other animal health products, and don’t “step over dollars picking up nickels.”
  • Know when to let go – have a “quitting plan” and stop spending money on lost causes.