Producers should have a plan as beef prices fall

Producers should have a plan as beef prices fall

Beef herd owners have multiple ways to lock in prices and breed more profitable cattle

Record-setting returns for herd owners in 2014 went above $500 per cow, topping previous-year returns. As recently as 2008 and 2009, returns over annual cash costs, including pasture rent, were below zero.

Related: 10 ways to cut cattle feeding costs

"Returns of over $400 per cow for the last three years are phenomenal," says Scott Brown, University of Missouri economist. "Producers have never seen anything like this."

In spite of easing in calf prices, good prices can still be locked in and reasonable prices are still available for forward pricing options. "Starting risk management can bring better nights' sleep," he adds.

Beef herd owners have multiple ways to lock in prices and breed more profitable cattle (Thinkstock/flowersandclassicalmusic)

Brown says herd owners have multiple ways to lock in prices. With the oldest, farmers can forward contract cattle for future delivery. Feeder calves or fed cattle also can be hedged in the futures market.

The newest protection is insurance offered by the Livestock Risk Protection program. Premiums are underwritten in part by USDA.

"It's like buying crop insurance," Brown says. "Agents who offer crop insurance often sell LRP. If they don't sell it, they will know who does."

Insurance can protect the entire calf crop, or part. Lowering protection levels lowers costs. "Buying livestock insurance is like buying car or house insurance," Brown says. "You don't want to collect. It's a cost of staying in business."

November reports show corn growers have sold 20% of their crop. Another 10% of corn is hedged, while 70% remains unprotected. That's for next year's 2016 crop, which isn't near planting time yet.

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Corn farmers went through a record-price boom followed by drastic drops. Herd owners can learn from that. "Cattle producers can handle things differently going ahead," Brown says.

The economist points out many risks facing cattle prices that already trend lower.

Risks include a strong U.S. dollar that cuts foreign trade, a possible drop in consumer demand, or lower-price pork and chicken might sway consumers away. Also, growing cattle supplies could cut beef prices.

Related: Flex stocker program to maximize grazing

Then there are disease risks such as mad cow, which halted U.S. beef exports and cut prices. A current slowing of export sales means U.S. consumers have more beef to eat.

Profitable prices are still available for protection, Brown says. "Going forward I worry more about downside risks than upside potential."

Another long-term risk protection comes from improving the herd genetics, Brown says. Research in the cow herd at the MU Thompson Farm shows how new technology improves herd performance.

Timed artificial insemination results in higher quality and more uniform calf crops. Quality brings premium prices.

Brown points out that prices for higher USDA grade beef remain more stable than prices for lower grades. Reducing price volatility is risk management. "Invest in quality technology and be prepared for what is coming down the road," he says. "Doing nothing is a strategy."

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