Price Protection Can Be Found Through Quaility Beef

By: Duane Dailey

Cow herd owners leery of the futures market or insurance for risk management can look to quality beef for protection. Scott Brown, University of Missouri livestock economist, explained that option at the MU Thompson Farm field day this fall. He asked the farmers present if any were using risk management. No hands went up.

“You could have made lots of money with risk management,” he said. The beef-owner response was not a surprise. Livestock owners don’t use risk control tools widely used by crop farmers, Brown said.

Brown’s charts show prime beef prices consistently sold well above prices for USDA choice and select, the lower grades.

And the prime price line over time was fairly smooth. The price lines for the lower grades jumped up and down.

Prime prices are less volatile, he said. Then he told how that higher, less volatile price offers risk management. Steady prices reduce unknowns. The high-quality beef not only brings more money, it also sells at premium prices at the packers. Programs such as Certified Angus Beef (CAB) help boost income even in times of low beef prices.

Brown did not predict a bottom point for falling beef prices. However, he said downside risk remains. Risk management can still prove profitable in uncertain times. “Develop a plan,” he advised. “Going home and doing nothing is a plan. Not a good plan, but a plan.”

He said that cow-calf returns of $550 per head, as in 2014, will not likely be seen again. “We had never—I say, never—in history seen returns like those.”

However, his charts showed that falling prices remain above long-term averages from before the beef price bubble.

“Basic economic laws still work,” Brown said. “Supply and demand affects prices.” Producers, in response to record prices, held back more heifers and grew more calves.

In the last two years, producers sold an additional 3 billion pounds of meat per year. That was on top of record pork and chicken already on the market.

In his forecast, Brown sees another 3 billion pounds of beef coming.Brown said the cattle cycle is changing. Backing off on production comes much slower now. “Producers respond to high prices by increasing the cow herd. But they delay cutting the herd when prices drop.”