Record-high cattle prices offer a significant financial opportunity for those producers who leverage smart marketing and risk management strategies. That’s according to Dr. James Mitch, a livestock economist at the University of Arkansas.
“The prices are really high, but we looked at volatility in the market and how there are still some pretty big market swings in either direction. Plus $15 a hundredweight, minus $15 a hundredweight, depending on the week and the location you’re talking about, and so maybe taking some of that risk off the table is still an important consideration – lots of ways to do that, like you mentioned, with Livestock Risk Protection. There are futures markets. Options for contracting are all available.”
He talked about the Livestock Risk Protection Program.
“With LRP, in the past couple of years, they’ve increased the subsidies on it to make the premiums a little bit more affordable for producers, which is good, but again, cattle prices are really, really high, and so the premiums on doing some of this risk management is going to be more expensive, and I think that’s an important consideration as well. With where the cattle market currently is, the futures market’s pricing in seasonality, and so, being aware that if you’re going to market some cattle in the spring, and looking at what LRP is currently offering, it might not match up exactly, just because of how strong of a calf market that we’re currently in.”
It’s a great time to be cattle producers with the high prices, but Mitchell said there are important things to remember.
“With risk management, if that’s something that you’re considering doing for the first time, my advice is always just to take it slow and make sure that you’re aware of how the product works and set reasonable expectations for what that product can do to your bottom line. Again, I like to compare risk management products to buying insurance on your house, right? You don’t jump up and down excited when your house burns down, and you get a payment from your insurance, right? It’s there to protect you in case something like that does happen. It’s the same thing with risk management. The best scenario is still for the market to improve, but you have that product in place in case something adverse does happen. So, I think that’s kind of the advice I tell people.”
It’s also important to think about the long-term.
“With cattle prices really, really high right now, what are some ways that you can invest that money back into your operation to set yourself up for success in the future? What type of improvements can you make in terms of productivity and efficiency and setting yourself up for success in the next couple of years, i think, is another I think is another thing to be thinking about right now as well.”