Defense amid crashing cattle markets
“You may wind up having to sell into a down market, so think about how you can keep this a bad year rather than the last year.”
Wes Ishmael, BEEF Magazine
Mar 18, 2020
Carnage in the spot cattle market wrought by global COVID-19 fears went beyond gut wrenching by the middle of March.
From the January high to March 13, spot Live Cattle futures were down $32.52 (-25.4%) to $95.75. Spot Feeder Cattle were down $34.45 (-23.4%) at $113. Negotiated cash fed steer prices were about $14 per cwt less (approximately -11.3%) on a live basis. The CME Feeder Cattle Index was down $18.92 (-12.9%).
COVID-19 cases were just beginning to bloom in the U.S. as President Trump declared a national emergency. Schools, sports leagues, organizations and businesses postponed, suspended, cancelled and altered the flow of daily human interaction. There is no vaccine and no end in sight.
For cattle producers, Jim Robb, senior economist at the Livestock Marketing Information Center, emphasizes this is a financial story, not a marketing one. Price risk management opportunities have long since left.
“You make the balance sheet work and then make the cash flow work,” Robb says. “Fundamentally, financial risk management is how you prepare. Do you have the financial wherewithal to span the Black Swan event? Can I buy the cash flow, buy the balance sheet?”
“You may wind up having to sell into a down market, so think about how you can keep this a bad year rather than the last year,” says Derrell Peel, Extension livestock marketing specialist at Oklahoma State University. “If you’re highly leveraged, you’re more vulnerable, but the sooner the better to sit down with your banker to talk about what has to be covered and figure out how to roll into opportunities ahead.”
Of course, that includes assessing comparative opportunities and options.
“This may be a year to think about broader opportunities,” Robb says, “Depending on forage and management, cow-calf producers have lots of options.”
As examples, Robb says...