Agricultural News
Risk Management Decisions are Crucial in Current Cattle Market
Mon, 22 Aug 2011 16:56:12 CDT
Tom Brink, President and Chief Operations Officer of the cattle ownership arm of Five Rivers Cattle Feeding, recently spoke at the Wheatland Stocker Conference to educate producers on risk management. Five Rivers Cattle Feeding has 12 feedlots and can hold more than 950,000 head of cattle, annually marketing up to 2 million finished cattle.
Brink is familiar with managing risk and says one of the biggest challenges in risk management is that you have to make decisions that very quickly tell whether you were right or wrong. Brink also says when making risk management decisions, it is important to have a sound thought process, have a target price in mind that allows you to lock in some profit and then hedge the cattle or a percentage of the cattle.
Brink also says that producers have to be willing to make decisions in a fast moving environment so they can take advantage of opportunities in the market when they are there.
At the Wheatland Stocker Conference, Brink discussed what he called the Ten Tenets of Risk Management that producers should keep in mind. The tips from Brink in managing risk are listed below.
-Understand your risk tolerance
-Decide what the futures market should do for you (hedge risk or become a profit center)
-Start with a competitive breakeven
-Know your position
-Analyze financial outcomes over a wide range of potential prices
-Establish risk management decision-making structure
-Write down a specific plan. Follow the plan. Update it regularly
-Project the market's likely range and shorten and lengthen your position accordingly
-Manage your coverage in percentages while evaluating risk vs. reward
-No one gets the market right 100% of the time, so work for a good batting average
Click on the LISTEN bar below to hear the rest of Ron Hays and Tom Brink's discussion on producers managing risk and the current situation in the cattle market when it comes to hedging.
The Beef Buzz is a regular feature heard on radio stations around the region on the Radio Oklahoma Network- but is also a regular audio feature found on this website as well. Click on the listen bar below for today's show- and check out our archives for older Beef Buzz shows covering the gamut of the beef cattle industry today.
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