A year ago I suggested that 2015 might just turn out to be “The year of the grass manager?!” For those who had grass to manage, and converted it to lean muscle in the form of beef or perhaps lamb, indeed it has been a profitable year . . . especially for cattlemen who sold early! Will 2016 become the year of the marketer and risk manager?
Despite the plunge in prices during the past few months, margins, particularly for those who utilize grass as the basis of their feeding program, remain good. Consider the comments offered by University of Tennessee economist Dr. Andrew P. Griffith in his weekly comments:
. . . Prices are still higher than they were the first week of December 2013! Making that statement may seem like a stretch to some producers, but in the fall of 2013 producers considered calf and feeder cattle prices to be extremely strong. In actuality, market prices this week compared to December 2013 could be stated as steady to $2 per hundredweight higher. It is unlikely the sentiments of prices today being equivalent to prices two years ago makes anyone feel better about where the market is. . . . prices in December of 2013 and 2015 are essentially the same . . .
Perhaps what is separating the average beef cattle farms from the most highly profitable ones has been the ability to manage risk and get cattle and calves marketed at times when income exceeded the cost of production.
That being said, as this year winds down perhaps it’s time to offer two simple reminders about profitably marketing at a time when we are still seeing the second highest calf prices in history.
The first suggestion would be to remember the key to effectively managing risk and remaining profitable is knowing the cost of production and accurately identifying breakeven prices. Second, consider the marketing alternatives beyond just cash sales. Explore forward contracts, futures/options hedging, contract feeding, livestock risk management insurance and perhaps some value added opportunities.
During the first session of the Ohio Beef Cattle School webinar series on January 19, we’ll spend the evening focused on the markets as well as some of the tools available for sustaining profitability when opportunities are available. Derrell Peel, Oklahoma State University Extension Livestock Marketing Specialist, will kick off the evening with his insight into the beef cattle markets . . . where they’ve been, where they may be going, and how they could get there. Sam Roberts of Producers Livestock will also join the broadcast on the 19th and offer suggestions on market risk management.
While the most astute grass and cattle managers remain positioned to capitalize at today’s prices, it’s important to maintain a plan that allows one to take the greatest advantage of profitable prices during the volatile times we’d expect to remain in the markets.
Regardless what you might call the coming year, most importantly, prepare yourself to enjoy a great 2016.