K-State Beef Cattle Institute experts discuss protecting profitability amid market volatility and drought concerns
By Chevy-Lynn Vaske, K-State Extension news service
MANHATTAN, Kan. — Record-high cattle prices may be creating optimism across the beef industry, but Kansas State University experts say the strong market also increases the importance of managing risk.
During a recent episode of BCI Cattle Chat, experts from the Beef Cattle Institute discussed how producers can protect profitability through market planning tools and risk management strategies while navigating uncertainty tied to weather, herd rebuilding and volatile cattle prices.
K-State agricultural economist Dustin Pendell said understanding the “basis” is one of the first steps producers should take when considering how futures markets work.
“The futures market is based out of Chicago, but your local market may be Manhattan, Kansas,” Pendell said. “That difference between the local cash price and the futures price is the basis.”
Pendell said basis levels can vary depending on transportation costs, local supply and demand and regional market conditions. Understanding those differences can help producers make more informed marketing decisions and better evaluate price protection opportunities.
As producers look for ways to reduce downside risk, Pendell highlighted Livestock Risk Protection insurance, commonly known as LRP, as one tool available to cattle operations.
“With Livestock Risk Protection, producers pay a premium for coverage and if prices move against them, that protection can help offset losses,” Pendell said.
Unlike futures contracts, LRP allows producers to establish a price floor while still benefiting if markets continue to rise. Pendell noted that flexibility can make the program attractive for cow-calf producers who may be less familiar with traditional futures market strategies.
The discussion also focused on how current market conditions are increasing the financial exposure for producers making herd management decisions.
“High calf prices create opportunities, but they also increase the amount of risk producers are carrying,” K-State veterinarian Brad White said. Shifts in drought conditions, feed costs or cattle supplies could quickly impact profitability for operations that are not prepared for market swings.
To learn more on risk management strategies, listen to the full episode of the Cattle Chat podcast.
