Don’t Risk the Risk Not even the most astute market analysts and uni- versity livestock economists could have predicted the dumbfounding, sky-high prices for nearly all cattle. Despite $6/lb. ground beef, $30 to $40/lb. ribeyes and other costly cuts, consumers have kept buying beef. Those juicy burgers and incomparably delicious steaks have been worth the price. But when have high cattle prices ever not come down, even if temporarily? Markets reacted instantly to President Trump’s comments on increasing beef imports from Argentina and other administration efforts to increase cattle production. In its Nov. 4 Market Watch report, Commodity and Ingredients Hedging (CIH) indicated both live and feeder cattle futures sold off sharply in the second half of October following commodity fund liquidation in response to President Trump’s recent comments regarding high beef prices and the need to bring them down. Nearby feeder cattle futures plunged 16 percent from $380/cwt. to $320 in the January futures contract, CIH reported. February live cattle futures dropped around 12 percent from $250/cwt. to just above $220 as the White House announced several initiatives to help lower beef prices. Those additional measures include possibly reopening the border with Mexico for the resumption of feeder cattle imports. The controversial tariff rate quota available to Argen-
Stephen Koontz
For example, Moroney says, in early November, the LRP fed cattle offering for a Feb. 12, 2026, $219.75 coverage level was $7.90/cwt.“A producer could have paired that with an obligation to be short on the CME at $236 by selling Feb. $236 call options for $2.70/cwt. That would create unlimited downside protection with room for opportunity up to $236 at a cost of $5.15/ cwt. If the market were to run up beyond $236, the pro- ducer would be obligated to be short. Net of all costs, the producer would be short at $231.85.” Moroney says an LRP/call options strategy may also help provide feeder cattle price protection at a lower cost. For example, with the LRP March feeder cattle contract at $312 in early November, a producer could have secured an LRP to protect that price for $14/cwt. “Your net price protection after premiums for the LRP would have been $298. The same LRP/call options strategy could have been used to cheapen it up. As an example, a producer could have sold the March feeder cattle $340 call for approximately $6.25/cwt. The re- sulting coverage cost would have been $7.75, netting the producer a minimum price of $304.25 and a maximum price of $332.25.” “Remember, we were all celebrating when we finally crossed $300 back in July,” Moroney says, noting that LRP contracts change regularly, but should still provide opportunities for producers and feeders to help manage their financial risk.
tina would quadruple the volume to 80,000 metric tons, or just under 180 million pounds. However, that’s just a fraction of the 25 billion pounds of beef produced in the U.S. “Do the math on the change in the quota and compare it to 25 billion pounds,” Koontz says.“Fed cattle and calf prices have been too high all year. I don’t think it was the import comments. The market was looking for something to trigger selling – and that just happened to be it.” Should You Fix a Floor Price? When the $380/cwt. futures price for January ’26 feeder cattle dropped to $320, it was about a $420-per-head hit for sev- en-weights. Of course, the $320 was still well above the $250 market in early February. But the $60/cwt. that was lost could have been partially protected with Livestock Risk Protection (LRP), options or straight futures hedges. “It is just advisable to buy LRPs,” Koontz says.“I perceive the risk as to the downside. Tight supplies are guaranteed. That will hold prices up. But surprises will be bad news.” Mike Moroney, CIH senior vice president of client services, says a sturdy risk management plan “is imperative in markets like this when the equity-per-head swings are in excess of $500 per head. “There are no easy risk management solutions in a market like this,” he says.“Everyone wants all the upside with no downside and wants it for free. That isn’t reality. However, producers can blend insurance alternatives with exchange positions to create ranges of protection at a more affordable price.”
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