Page 41 - MWC 3-10-2022s

Price Risk Management Tools for Cattle Producers The Midwest Cattleman · March 10, 2022 · P41

By Dr. Kenny Burdine, agree on a price now for cattle agement tool, they are pretty August, the producer will gain
Extension Professor, Livestock Marketing, to be delivered at a later date limited in their use for cattle in on their short futures position,
University of Kentucky and this expectation of higher Kentucky. which will offset some of the
The last few years are un- prices should be reflected in the Hedging, through the sale of loss in value of the cattle they
likely to be remembered fond- contract price. Assuming the deferred futures contracts, is will sell. Producers who choose
ly by many cattle producers. contract is binding and enforce- another way to capitalize on a to implement this strategy
Large cattle supplies, a global able, this strategy eliminates strong futures market. As an need to be certain they have ac-
pandemic, weather challenges, price risk. However, production example, a producer who plans cess to considerable capital for
and a sharp increase in feed risk remains a concern if cat- to sell cattle in August, may margin calls. If futures prices
prices have all impacted feed- tle don’t perform as expected, choose to sell an August CME© continue to increase, producers
er cattle values. However, 2022 fail to reach the agreed upon Feeder Cattle futures contract can lose a lot of money on short
has brought optimism for a weight, or if weather conditions now in order to have downside futures positions before they
significantly better cattle mar- necessitate earlier sale of the price protection until they sell are able to sell their cattle on
ket. As I write this on January cattle. While forward contracts the cattle. If feeder cattle mar- the stronger market. For this
21, 2022, there is more than a are an excellent price risk man- kets decline between now and continued on page 42
$15 per cwt increase in CME©
feeder cattle futures from the
March contract to the August
contract. In fact, every contract
for August through Novem-
ber is trading north of $180
per cwt. It has been some time
since we have seen those types
of price levels, so they have
certainly caught my attention
over the past few weeks. This
article will briefly discuss some
tools available to cattle produc-
ers should they want to pro-
tect themselves from downside
price in 2022.
First, producers could con-
sider entering a cash forward
contract with a buyer looking
to place feeders later in the
year. The two parties could

Callaway

Livestock

Center, Inc.

On I-70, 4 miles east of
Kingdom City, MO on outer road

573-642-7486

Feeder Sale

Monday
12:30 p.m.

1st Thursday Night
of Each Month

6:00 p.m.

Special Cow Sale

Jack Harrison
573-386-2138

John P. Harrison

573-386-5150