Risk Management More Important Than Ever For Cattle Producers

By Jeri Donnell Says

With cattle prices continuing an upward climb that doesn’t show signs of abating anytime soon, producers need to pay closer attention than ever to their operations and risk management says Agricultural Economist Consultant Jeri Donnell. Donnell works with the Noble Foundation and spoke at the recent Texoma Cattlemen’s Conference in Ardmore.
“Producers need to become more familiar with managing their risk just because of the value of these cattle that we have today and the increased feed prices, hay prices, all of those things go into their daily decisions and even though they may be doing the same types of things they were doing 20 years ago, we’re at a completely different price structure than we’ve ever been at before.

While that climbing price structure may look good to producers, Donnell says it is making bankers more than a little skittish when it comes time to lend money to ranchers. Because of this, producers need to adopt some strategies that may be a little foreign to them.

“And, so, some ways to ease those bankers’ fears of this large volatility in the cattle markets is to use some risk management: either trading futures and options or, if you’re not extremely comfortable with that at this point, gaining some education in that area and, perhaps, trying to enter into some cash-forward contracts or at least looking into some seasonal markets, the seasonal patterns of those markets and, maybe, some changes in the bases-the differences between the cash and the futures markets-so they can use those ideas to determine at what level or at what time they may want to do some pricing.”

Though risk management may be new for some producers, Donnell says it is not as mysterious as it might seem. She said producers basically need to know their cost of production and their break-even price so they can make informed management decisions about the profitability of their herds.

Plus, she says, producers are not on their own. A new online decision-making tool, BeefBasis.com, developed by Kansas State University, can help them get a handle on risk management.