Jeri Donnell Demystifies Risk Management for Cattle ProducersWed, 28 May 2014 10:34:34 CDT
With cattle prices continuing an upward climb that doesn't show signs of abating anytime soon, producers need to pay closer attention than ever to their operations and risk management says Agricultural Economist Consultant Jeri Donnell. Donnell works with the Noble Foundation and spoke at this spring's Texoma Cattlemen's Conference in Ardmore.
"Producers need to become more familiar with managing their risk just because of the value of these cattle that we have today and the increased feed prices, hay prices, all of those things go into their daily decisions and even though they may be doing the same types of things they were doing 20 years ago, we're at a completely different price structure than we've ever been at before."
While that climbing price structure may look good to producers, Donnell says it is making bankers more than a little skittish when it comes time to lend money to ranchers. Because of this, producers need to adopt some strategies that may be a little foreign to them.
"And, so, some ways to ease those bankers' fears of this large volatility in the cattle markets is to use some risk management: either trading futures and options or, if you're not extremely comfortable with that at this point, gaining some education in that area and, perhaps, trying to enter into some cash-forward contracts or at least looking into some seasonal markets, the seasonal patterns of those markets and, maybe, some changes in the bases-the differences between the cash and the futures markets-so they can use those ideas to determine at what level or at what time they may want to do some pricing."
Though risk management may be new for some producers, Donnell says it is not as mysterious as it might seem. She said producers basically need to know their cost of production and their break-even price so they can make informed management decisions about the profitability of their herds.
Plus, she says, producers are not on their own. A new online decision-making tool, BeefBasis.com, developed by Kansas State University, can help them get a handle on risk management.
"It is free to the public. Individuals basically choose where they're at in location and where they're going to sell. Oftentimes in this state we have choices of Oklahoma National, OKC West and many of our other regional markets around the state. So, they choose where they want to sell, what type of calf they're selling, whether or not it is a steer or a heifer, and then whether or not the size and the quality of that animal and what point in the future they want to sell. They basically click all those variable, choose when they want to sell them and then hit the 'run' button and it will then tell them what they can expect for a cash price."
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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