Cattle market options
I’ve raked in, on average, about $100,000 a year profit on my cattle operation the last three years.
Yup, I’m starting to think about buying a Caddy.
But, alas, the hot wheels will only be on paper, just like my profits.
My cattle adventure came from a marketing course put on by Alberta Agriculture. It’s called Cattlesim, and it allows participants to raise and market calf crops over 30 months in a simulation exercise.
You can also buy calves and feeders to put on pasture, feed at home or put them in a custom feedlot.
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You revise your marketing plan every three months based on fictional market information you receive and a computer spits out how much was made or lost on sales.
The designers tried to make market conditions realistic with fluctuating cattle and barley prices, droughts and bumper crops, and threatening U.S. trade actions.
It was a challenge, but obviously it wasn’t too hard because even I made a profit.
During the classroom sessions, instructors Lee Melvill and Doug Walkey drove home the importance of knowing your marketing options and managing risk.
Too many cattle producers still sell their animals according to the weather or when it becomes inconvenient to have them around.
And many consider the local feedlot or auction mart to be the only market. A wise marketer knows the charges and shrink costs of several markets, considers feeding to slaughter weight and selling to Canadian or U.S. packers.
And producers should know the risk management options of using the live and feeder cattle futures contracts listed on the Chicago Mercantile Exchange.
Once you are aware of market options a cost of production analysis will tell you whether you should be buying cattle at all, given the price at which you can expect to sell them.
It also shows when it is time to lock in a price by hedging with a futures contract on the CME.
Many producers don’t like hedges because, although they protect them from a fall in price, they also eliminate profiting if there is a run up in cattle prices.
And some say they don’t want to participate in a market influenced by greedy speculators.
But leaving cattle unpriced in a volatile market is the worst and most risky type of speculation, said Walkey and Melvill.
The goal of marketing is not to catch price peaks, but to try to always get a price that covers all your costs. That way, you’ll still be in business next year.
