With feeder cattle prices in the $2 per pound range, stocker cattle bringing north of $3 per pound and the estimated average cow-calf returns well over $400 per cow, Brett Crosby of Custom Ag Solutions says it is a great time to be in the cattle business.

INVEST IN IMPROVEMENT: Beef cattle producers can capitalize on the positive markets by spending money ramping up genetics in the herd--selling off older cows and purchasing proven heifers.

Crosby, who is also a fifth generation rancher from Wyoming, works with the government agencies, universities and private industry focusing on agriculture projects related to risk management. "We think current prices are sustainable," he told a group gathered at the Missouri Cattlemen's Association convention in January. "As long as we do not have an economic downturn, I think prices are going to be much higher going into this year than last year. The high for average live steer prices could be $1.90 per pound." He anticipates the average fat cattle prices staying high through 2016.

Crosby says cattlemen are now in a position that they need to know what to do with these high prices. He offers the following advice:

Improve efficiency. Crosby points to a Kansas State University study that found cattle producers who were in the top third in terms of efficiency were consistently profitable. "Even in the price downturns of 2009 and 2010, which was the least profitable years for calf producers according to K-State, even in those times this group was making money," he said.

TALKING PROFITS: Brett Crosby, owner of Custom Ag Solutions out of Wyoming, enjoyed telling beef producers attending the Missouri Cattlemen's Association annual meeting that prices were going to remain strong through 2016.

The KSU study, "Differences Between High, Medium and Low Profit Cow-Calf Producers: An Analysis of 2004-2008 Kansas Farm Management Association Cow-Calf Enterprise," found that compared to the bottom third of producers, the top third had 34% less total cost; 56% less depreciation cost; 46% less machinery cost; 44% less labor cost; 33% less interest cost; 21% less feed cost; 63% less "other" cost. The most profitable producers also spent 2% more on cattle health than the least profitable.

Crosby notes now is the time to improve efficiency. "While you have these high prices that give you extra cash or extra capital invest in technologies that make you efficient." He points to machinery, building improvements and equipment as areas cattlemen can look for an upgrade.

Focus on big things. For Crosby the "big things" in cattle production are calf crop, calf weights, and retention rates. Crosby says now may be the time to cull that problem cow. "If they lost a calf last year, the might lose another this year," he says. "At these prices is it worth the risk?" He points that a better risk management strategy is to purchase a replacement that can provide a calf this year. "While you have the money, invest in cows that produce a calf crop."

Cattlemen will pay for older cows. "In some areas," Crosby notes, "cows are bringing the same as heifers." Finding those cows with proven genetics is critical. He advised cattlemen to take advantage of the market and bring better genetics into a commercial herd. "It is an investment that will pay back for years to come."

Plan for all price possibilities. Prices can go down, Crosby notes. Make sure you are prepared and have a contingency plant. "For me, I buy a bunch of options on the futures market way out of the money $30 to $40 out of the money, so if lose half of value, it cost a couple thousand dollars for a couple $100,000 of protection against downward price movement." That strategy will help if the market completely falls apart, but it is only for one year.

Cattlemen should consider the USDA's Livestock Risk Protection, according to Crosby. "LRP is a way for cattlemen to protect against price declines," he noted. "It is one risk management tool out there worth looking at."

However, Crosby says producers cannot go wrong with a little advice from his father when dealing with the markets. "Dad always said, 'No one ever went broke locking in a profit." For that reason, farmers should consider forward contracting. "Don't worry about the market, it will always fluctuate," he adds. "If you can lock in profit, lock it in."