Manage the Risk
CattleFax economist shares tips for managing risk.
Managing risk is different than getting the best price, and a good risk manager recognizes that difference. That was the message CattleFax economist Ethan Oberst impressed upon attendees at the 2017 Range Beef Cow Symposium Nov. 29 in Cheyenne, Wyo.
He encouraged producers to get their risk management tools in order as the cattle cycle prepares to change.
“High prices are behind us,” he noted. “Profitability has peaked. Margins will narrow, but remain positive [for a time], but that’s going to change.”
His No. 1 recommendation for managing risk is to calculate and know your breakeven.
“If you don’t know your breakeven, I can’t help you with risk management,” he told producers.
Additionally, he emphasized knowing animal inventory, and suggested that cow herd operations especially look at grazing some yearlings, which allows for stocking flexibility depending on changes in markets or available forage.
With regard to marketing, Oberst said knowing the seasonal market trends is one relatively easy way to employ risk management and capitalize on price upswings. As examples, he shared data that showed in marketing 550-pound (lb.), calves the seasonal price trend indicates it may be more advantageous to market them via summer video auction as opposed to the cash market. Whereas, 850-lb. calves garnered similar prices on video and cash market, making either option viable.
The market for cull cows, Oberst shared, is “one of the most consistent seasonal price markets there is.” March through May or June present the highs, while October and November have the lows.
“Holding cull cows until spring can return $60 per head on average,” he added. “Managing risk on cull cows is one of the easiest ways to add money back to the operation.”
As additional risk-management tools, Oberst cited retaining ownership, using basis contracts, hedging and livestock risk protection (LRP) insurance. Learn more about the risk management services offered by CattleFax at https://www.cattlefax.com/
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