Cattle prices have been high, and market factors would indicate they will remain high. But North Dakota State University Extension livestock economist Tim Petrie says that doesn’t mean price protection isn’t necessary.Thank you for reading this post, don't forget to subscribe!
“When we have record high prices, volatility is also higher, as we have seen,” Petrie said during an Extension webinar on cattle background in early December.
Petrie learns about the fundamentals of cattle markets and how risk protection options can help reduce that volatility for cattle producers.
Using charts for illustration, Petrie showed how the feeder cattle market – driven by lower cattle numbers, lower feed costs and higher fed cattle prices – reached new all-time highs in September before falling. But, he said, the decline was entirely predictable. September is a typical time of high futures prices for cattle, and prices decline to meet cash prices at the end of the contract.
But that big decline was also a prime example of why cattle producers need to protect their risk. Buying or keeping high priced calves in the fall and banking on higher prices down the road can be a risky proposition financially.
Petrie said the U.S. Department of Agriculture’s Livestock Risk Protection Insurance or using futures market options can help protect against major market declines. Those special steps allow producers to “lock in the floor price and then leave the upper end open”, which can ensure the producer can spend the least amount of money on even cattle.
“Conservation is just the cost of doing business,” he said.
Petrie showed examples of LRP contracts, which change in price and value every day with market fluctuations. He explained that insurance is a safety net that can reduce some risk, it is not a sure thing for making money. Paying more for a contract results in a higher “floor,” but less expensive contracts may also provide adequate coverage.
“It’s all between you and your lender as to what your risk appetite is,” he said.
For more information on Livestock Risk Protection, where to buy it and how it works, visit
Petrie expects the cattle market to remain strong, as the fundamentals that have made it strong this year are expected to continue next year. Corn prices remain low, the futures market for fed cattle remains high, and the cash crop for next year will still be low, given how many cows have been pulled out of the U.S. herd in recent years. . But no matter what, price protection remains important due to the possibilities of all kinds of disruptions in the market.
“I still encourage value risk management, especially on a seasonal basis such as backgrounding or summer grazing,” he said. “There’s always a risk.”
When deciding what type of cattle background to build, NDSU Extension Ag Finance Specialist Brian Perman and Petrie said it’s important to look at the budget. Parman presented different scenarios for different types of cattle with different weights and compared the per-head potential profit on them.
Parman showed that heifers are much cheaper than steers at weaning. This is a gap that has persisted for many years. However, once animals reach the 850 to 900 pound area, that difference largely disappears.
“Relegating heifers to the background or even to finishing closes the price gap between steers and heifers, which are at their highest at weaning,” he said.
Comparing different scenarios of feeding heifers with a low average daily gain goal or a high average daily gain goal, as well as feeding heifers with a low average daily gain goal or a high average daily gain goal, Parman said the average gain was 525 to 805 pounds at 100 days. Upto 100 calves have been taken. Consistent winner in recent years.
“Every time I do this, whether it’s a weak year or a strong year, it’s the most profitable scenario,” he said. “Heifers are just the ticket.”
Parman also supported Petrie’s insistence on market protection, showing that feed costs could rise significantly before heifers became money-losing propositions, but the market would have to go down about 10% before profits would be lost.
“It would be a complete disaster,” he said.
Petrie said the heifers’ background also creates another opportunity for cattle producers. Many parts of the country have suffered drought in recent years, including the northern plains, as well as places like Oklahoma, Texas and California, which have seen some moisture in the past year, making it likely that some cattlemen will increase their May be looking to expand the herd after years of harvesting.
“Replacement heifers are going to be at a premium,” Petrie said, explaining that even if conditions change and no one is looking for replacement heifers “we can sell them as feedlot heifers and we added value. Is.”
In any case, it is worth looking at heifers when considering what type of cattle to feed.
“The budget shows we make good money on heifers,” Petrie said.
That doesn’t mean money can’t be made on some steers, he said, as Parman has also shown in his scenarios. It’s just that there is less space to work with given the high prices at weaning. Petrie also cautioned that highly fleshed steers hit the market when selling after farrowing, so “don’t put too much groceries in them.”