COVER STORY
According to The Ag Center ( https:// cattlereport.agcenter.com ), cattle placed on feed in July had a projected breakeven price of near $180 or higher. Projected prices for cattle that will finish about six months later were near $185 or higher, based on live cattle futures prices in that range. Projected profits were $80 to $90/ head. In the July 3 Oklahoma State University Cow-Calf Corner newsletter, Derrell Peel, OSU Extension livestock marketing specialist, reacted to the June 1 feedlot inventory of 11.55 million head,“down 2.9 percent year over year. Feeder supplies and feedlot numbers will continue to decline as the reality of smaller cattle supplies builds. Increased heifer retention is likely to squeeze feeder supplies more sharply in the second half of the year. Producer expectations and remaining drought conditions will impact the timing of herd rebuilding efforts.” Black Swans Can Take Flight With three years of price increases, some people have backed off from buying price risk protection.“You see
it,” Moroney says.“There’s a lot of risk management fatigue.” But while herd rebuilding, tight supplies and strong demand point to stout prices – history indicates there’s a potential black swan hovering over the horizon. Think back. There were no signs of the beef price freeze set in the 1970s, the whole-herd dairy buyout in the late 1980s, the BSE steer that stole Christmas in 2003, or that the COVID-linked price crash would cause another wreck in 2020. Moroney adds that during the drought years from 2011 to 2014, cattle numbers were tighter and prices increased. The $170/cwt. price was to the moon. “However, in 2015 and ’16, an adverse price risk presented itself,” he emphasizes, and price risk management helped many weather the storm.“And if prices continue to increase well into 2024, there’s a guess as to how long strong consumer and foreign demand for beef will remain this high.” Of course, cow-calf, stocker and background operators also need price protection. Calf and yearling prices are
in the $240 to near $300/cwt. range. Those powerful prices are helping make up for losses caused by the pandemic and drought. It might be prudent to set a floor price. Moroney cites a potential LRP feeder cattle strategy for 800-pound steers to be sold in November. In early July, the early-November LRP offering enabled producers to lock in about $245 for about $6/cwt., he says,“or $48/head to protect an 8-weight steer valued at almost $2,000.” He adds that for cow-calf, stocker and backgrounders, he is “less-inclined to sell call options to cheapen strategies because feedyard capacity has increased so much over the past several years and competition for feeders is going to be fierce.” Moroney concludes that producers and feeders should work closely with a marketing consultant and/or trader to determine which risk management program is best for their operation. “Everyone should consider that with tight cattle supplies, volatility increases. And volatility doesn't go in just one direction.”
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