As Cattle Prices Climb, Managing Risk Is More Critical Than Ever

What Happened

Feeder cattle prices continued their long-term uptrend, posting new contract highs again this past week. Tight supplies — due to a smaller herd, low feed prices, strong consumer demand, and rising deferred live cattle futures — have all helped propel futures to new all-time highs. Monthly futures charts indicate feeder cattle have been trending higher since finding a bottom in 2020 near $104 per hundredweight. Recently, front-month feeders (October futures) reached over $381, up $277, or 266%. Auction barns remain active, with one recent radio broadcaster describing activity as “red hot.” Deferred live cattle prices have recently accelerated higher as well. June live cattle futures have added $19 in the last month.  

Are firmer live cattle prices leading to the demand for feeders? Are higher feeder prices triggering buy orders of deferred live cattle futures on the premise that supply will remain tight and demand strong? Only time will tell; however, it appears that feeders are leading the cattle complex to higher prices. 

Why This Is Important

Those buying feeder cattle understand the risk when putting them in the feed yard. Input prices, mainly feed, could rise, and live cattle prices could drop. Risk management is paramount. Never in history have the feeder prices created such risk in the live cattle market. Whether or not feeder prices are leading the live cattle higher may be open for debate, and it really doesn’t matter. Buying high-priced feeders and betting on deferred live cattle futures to move higher is a trend that has been working well this past year. Risk has been rewarded. At some point, this likely will not work. Preparing for this potential — or likely inevitable — change may be the difference between staying in business or not. 

What Can You Do?

Plan and prepare. As the saying goes, if you fail to plan, you plan to fail. Commodity markets have a way of trending directionally for an extended period. Some argue that, as prices reach a peak, they accelerate. That could have been the case in recent weeks. If the trend reverses, it could be violent. A bull market could turn bearish practically overnight.  

Consider all marketing tools available and have discussions with those who can help you execute. A level head and solid strategy, along with implementation, are cornerstones of good marketing. The cattle complex has gained a bright spotlight in the commodity complex due to its attention-getting rise. Yet, traders look for opportunities. This could mean they aggressively sell, whether it is exiting long positions, establishing shorts, or both. Being prepared for the market to reverse should be a high priority right now.

Find What Works for You

Work with a professional to find the strategy or strategies best suited for your operation. Communication is important. Ask critical questions and garner a full comprehension of consequences and potential rewards before executing. The idea is to make good decisions for the operation rather than emotionally charged responses to market moves, which are always dynamic. 

Editor’s Note: If you have any questions on this Perspective, feel free to contact Bryan Doherty at Total Farm Marketing: (800) 334-9779.

Disclaimer: The data contained herein is believed to be drawn from reliable sources but cannot be guaranteed. Individuals acting on this information are responsible for their own actions. Commodity trading may not be suitable for all recipients of this report. Futures and options trading involve significant risk of loss and may not be suitable for everyone. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. Examples of seasonal price moves or extreme market conditions are not meant to imply that such moves or conditions are common occurrences or likely to occur. Futures prices have already factored in the seasonal aspects of supply and demand. No representation is being made that scenario planning, strategy, or discipline will guarantee success or profits. Any decisions you may make to buy, sell, or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to Total Farm Marketing. Total Farm Marketing and TFM refer to Stewart-Peterson Group Inc., Stewart-Peterson Inc., and SP Risk Services LLC. Stewart-Peterson Group Inc. is registered with the Commodity Futures Trading Commission (CFTC) as an introducing broker and is a member of the National Futures Association. SP Risk Services, LLC is an insurance agency and an equal opportunity provider. Stewart-Peterson Inc. is a publishing company. A customer may have relationships with all three companies. SP Risk Services LLC and Stewart-Peterson Inc. are wholly owned by Stewart-Peterson Group Inc. unless otherwise noted, services referenced are services of Stewart-Peterson Group Inc. Presented for solicitation.

About the Author: With the wisdom of 30 years at Total Farm Marketing and a following across the Grain Belt, Bryan Doherty is deeply passionate about his clients, their success, and long-term, fruitful relationships. As a senior market advisor and vice president of brokerage solutions, Doherty lives and breathes farm marketing. He has an in-depth understanding of the tools and markets, listens, and communicates with intent and clarity to ensure clients are comfortable with the decisions.