You have never had a better cattle market, nor more equity to protect, than you do this fall.

Now is a great time to review Futures, Futures’ Options, and Livestock Risk Protection products. These tools can help you make the most of great cattle prices. Our goal is to help you better understand each of these tools and teach how combining these tools can take your cattle marketing strategy to the next level. Confidently protect this market and better manage equity, market volatility, and cash flow by using the right combination of tools. The set of tools available to help you manage risk in the cattle market is better than ever. 

Livestock risk management history

How did these markets get here?

Drought and poor margins over the past few years forced American ranchers to reduce the size of cow herds, resulting in a decline in available fed cattle that just can’t be rebuilt overnight. Fewer animals on feed will remain the theme, and this problem will compound when ranchers decide to retain heifers and build herd numbers back up.

The supply story is well documented. The market knows this story and it has led to an increase in speculative positions in the cattle markets. Hedge funds are long and when they hold long positions, the funds are your friends. Any time funds are long, producers need to pay attention to the opportunity.

The market is offering you a chance to pass your price risk off to those speculators willing to take it. We have seen how quickly funds can leave our markets; often this is much quicker than they enter, and cattlemen need to proceed with caution when funds hold sizable, long-positions like they do today.

More valuable calves

When we look at cash markets, the feeder cattle index is $75/cwt higher than it was a year ago. This means your calves are worth about 40% more than last year. It’s fantastic that American ranchers are finally getting paid after weathering the storm over the past few years.

Take this a step further, Feeder Cattle futures contracts are pricing in premium above cash markets, January and March Feeder futures trading $8-$10/cwt above the current index; if we go out to August, the market has been pricing in $25-$30 premiums for next year’s calf crop. Those futures contracts will settle to the index, which is a weighted average of cash feeder cattle prices across the country.

High prices cure high prices

When markets get high, those costs get passed directly to the consumer. We have to question how resilient consumers will be. There are a number of economic headwinds facing consumers today and I don’t know that we’ve fully realized the impact of these higher prices yet. But we are starting to see signs of pushback. Exports in 2023 are suffering, down almost 8% compared to last year. Wholesale/boxed beef markets are starting to show some signs of consumer fatigue as well.

Beef on Dairy is an aspect of the U.S. production chain that has changed the most since the last big cattle market in 2012-14. In 2018, Beef on Dairy cattle accounted for just over 400,000 animals in the beef supply chain. Last year this had grown to 2.5 million head. High Quality Beef, and more of it, is the theme. Don’t underestimate the ability for these animals to help fill some of the supply void. After all, market prices are sending a signal to produce more high-quality beef. 

If you are in the cow-calf business, you have a great opportunity to protect equity on calves today and the calves you will market next fall. If you are a stocker or feeder, you’ve never had more equity tied up in an animal than you do today. The cattle coming out of the yard and off grass today are making money. Don’t let the next group of cattle you place take it back away from you. Take advantage of these markets and start managing price risk. Engage in a marketing strategy that can help you confidently and comfortably manage risk in these markets.

ATI Agency can write LRP endorsements in many states. Contact Advance Trading at (800) 747-9021 or go to www.advance-trading.com.

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The risk of trading futures and options can be substantial. All information, publications, and material used and distributed by Advance Trading Inc. shall be construed as a solicitation. ATI does not maintain an independent research department as defined in CFTC Regulation 1.71. Information obtained from third-party sources is believed to be reliable, but its accuracy is not guaranteed by Advance Trading Inc. Past performance is not necessarily indicative of future results.

The opinions of the author are not necessarily those of Farm Futures or Farm Progress.