Cattle producers would be well advised to look to the future as they make their marketing decisions.
More specifically, they should be looking to the futures market.
That was the message delivered by Stan Jeeves to cattle producers attending the annual meeting of the Saskatchewan Cattle Feeders Association.
Jeeves, who farms at Wolseley, Sask., and teaches courses in agricultural marketing, said producers should be skeptical of those who claim to know where prices are going, because no one really does.
But having said that, he added there are legitimate signals that producers can use as they try to plan their future.
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“The futures market can tell you what prices you want to sell at in order to make a profit,” he said. “Forward contracting cattle is a valuable risk management tool.”
Having the right information and knowing how much their animal is worth puts the producer into a position of strength when it comes time to buy or sell.
Use information
Too many producers don’t take advantage of the information and the risk management strategies available to them through the futures market, said Jeeves.
“They’re aware of a futures contract, but they’re not aware of how that filters down to becoming the price that they receive for their products,” he said. “They don’t recognize that link.”
Once they’ve figured out where the price might be a year from now and what sort of sales revenue they can expect, producers must follow that up by forward contracting to take advantage of what they know.
“Then you can hedge off the cattle or lock in the price you will receive at sale date for your animals, and remove some of your risk.”
For big and small
Most large producers do some forward contracting, he said, but most smaller ones don’t.
Local livestock feeder associations should safeguard themselves by doing the math to ensure that a producer has bought correctly and has realistic price expectations.
“If the producer expects the price to go up next year, and the market signals are all saying there isn’t going to be a slight correction, they’ll want to step in and say ‘just a minute here, have you considered this possibility when you’re making your purchase,’ ” he said.
Putting on his market analyst’s hat, Jeeves told the audience of cattle producers, buyers and industry officials that the market is now saying feeder prices will be down a year from now, reflecting expectations of higher corn prices.
American farmers are expected to switch from corn to soybeans this year, due to high fertilizer prices and better farm program support levels for oilseeds. That could boost corn prices by 50 cents a bushel.
The cattle at the greatest price risk are those that will come off grass next August and September into a rising corn market.
“The rising corn market could take 10 cents off the price of calves,” said Jeeves, adding he expects the market will recover to a new peak in 2003.
