Livestock risk protection for calves
Source: Matthew A. Diersen, Professor, Department of Economics, South Dakota State University
Regardless of the cold, spring calving has started. While it is at the early stages, it is not too early to think about price protection for those calves. The high cash and futures prices have people talking about the value of calves to be sold this fall. A solid risk management tool for cow-calf producers to consider is Livestock Risk Protection, or LRP, on feeder cattle. There are adjustment factors that tailor LRP to calves (weighing less than 600 pounds), heifers, dairy and Brahman cattle. For some general background on LRP, see: http://www.rma.usda.gov/pubs/rme/lrp-feedercattle.pdf.
LRP is offered and sold by insurance agents, and is available in most cattle states. LRP only covers price risk, not production or mortality risks. Buying LRP is like buying put options. There are potential advantages using LRP. The first advantage is the ability to cover a small or an odd number of head. A standard feeder cattle futures or options contract is designed to cover 50,000 pounds of feeder-weight steers. Producers covering fewer pounds or with the equivalent of a half of a contract, may find that LRP is more cost-effective as it is sold on a per-head basis. The second advantage is the set of adjustment factors which effectively fix the floor-price basis for any class of cattle that you would otherwise cross-hedge against feeder cattle contracts.
- Cattle Outlook: Boxed beef prices advance, fed prices retract
- Beef Industry Food Safety Council hosts annual Safety Summit
- Using the “Nebraska advantage” to grow the livestock industry
- Monday Market Sentiment: Cash rally continues, gains momentum
- In China, pork is still king, but beef is rising
Monday Market Sentiment: $149.76
Last Week’s Trade: $150.55
This Week’s Winner:
Shelby Jones, Ranger Feeders
*Click here for contest rules