David Anderson, Texas A&M AgriLife Extension, has written about markets reaching record-high cattle costs as cattle provides tighten and a number of the questions on the market concerning the market later within the 12 months. Cow-calf producers definitely welcome greater costs anytime, however what concerning the producers who don’t have something to promote proper now?
Almost 75% of the calves born within the U.S. are born in the course of the first half of the 12 months, which implies many producers are calving or have already completed calving for the 12 months. These calves are nonetheless nursing and most probably gained’t be offered till later in the summertime or fall.
Whereas it could be months earlier than the spring calves are offered, producers do have alternatives to make the most of worth threat administration instruments now.
Not solely are cattle costs surging to excessive ranges now, however there may be additionally optimism that cattle costs may proceed to achieve steam as we transfer by 2023.
Seasonal contracts
The chart above plots the contract worth for every Feeder Cattle Futures contract month traded on the CME Group. The spring contracts are buying and selling close to $200-$205 per cwt, however the summer season and fall contracts are buying and selling above $220.
A few of this improve is seasonal, however a lot of it’s also pushed by the expectation of frequently tighter cattle provides. Importantly, these expectations of excessive cattle costs imply there are worth threat administration alternatives not seen since 2014-2015.
Value threat administration instruments
There are a number of worth threat administration instruments that cow-calf producers promoting later this 12 months may take into account. Promoting a futures contract or buying a put possibility are potential methods. One factor to contemplate about these selections is the contract dimension is 50,000 kilos which is perhaps a bit giant for a lot of cow-calf producers.
Ahead contracting is value contemplating – this merely means a producer would lock in a gross sales worth with a purchaser prematurely. USDA’s backed Livestock Threat Safety (LRP) software can be value contemplating and can be utilized on as few as one head which makes it value a search for producers of all sizes.
Your native crop insurance coverage agent could also be nicely outfitted that can assist you in any LRP choices. Every of those instruments has their very own design and tradeoffs to know earlier than leaping in, and there are definitely different threat administration methods on the market.
Nevertheless, all instruments are at the moment providing threat administration alternatives at worth ranges not seen prior to now eight years. Even when a producer doesn’t have any calves to promote now, they will nonetheless reap the benefits of the optimism available in the market by managing their worth threat.
Supply: Southern Ag At this time
