Cattle producers spend much effort to ensure their herds produce healthy calves.
During calving season they make sure cows are in good body condition, ensure calving facilities are clean and dry, protect newborns from extreme weather and implement a vaccination program to protect calves from diseases.
During later spring and summer, concerns shift to adequate grass and grazing rotation, and good water sources. With the past dry summer, some producers may be forced to lower animal units on pasture or some may have to put up more hay than in previous years.
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All are examples of key risk management steps that producers have incorporated in daily routines.
But it’s equally important to also control the price risk when the calves are sold in fall. Calving season is a good time to look toward the future and come up with risk management strategies.
The rapid and extreme collapse in feeder prices last fall highlight the need for risk management.
Prices on 600 to 700 pound steers in September averaged around $2.93 per lb. in Alberta. By December the average had fallen to $2.23.
There was much price volatility in November, and if your calves were marketed on the wrong day or week, it would have made a large difference in the cheque you got.
With so many factors affecting prices, it is important to assess the risks you are exposed to financially and then determine if there are ways to mitigate them.
Cow-calf producers know they are often price takers, and depending on the operation, may be forced to sell calves once grass runs out, or if they do not have facilities, to feed them longer.
Calf prices are affected by many factors such as the Chicago cattle futures price, the Canadian dollar, basis and barley price.
There are ways you can hedge each of these factors if you have the time and knowledge.
You can also take a look at using a simple risk management tool such as the Western Livestock Price Insurance Program.
WLPIP is available to cow-calf producers in March and April to hedge a price for calves for a period in the fall.
For example, last March, for a premium of $6.77 per hundredweight, you could have locked in a minimum price of $270 per cwt. Average market price for 600 lb. steers in November was around $249 per cwt.
WLPIP would have netted the producer an extra $85 per head on that 600 lb. calf after factoring the cost of the insurance.
WLPIP has many levels of coverage depending on the settlement price level you choose for the fall.
You must ask yourself what coverage level you need in the worst case scenario to cover your costs?
Or, if prices would drop significantly in the fall and you are short of cash to pay bills, would WLPIP help you avoid the need to sell bred cows, or bred heifers to generate additional cash flow?
The fall calf market conditions affect a lot of future decisions for your operation in relation to cash flow, heifer retention and expansion plans.
We recommend you take a closer look at your operation to determine your break-even costs so you can take a balanced approach at what type of coverage you need.
If you are a young producer expanding your herd, look at your business plan to see if using a risk management tool such as WLPIP would allow you to mitigate a few risks, allow you to execute your business plan and expand your operation faster.
