Extension Education: Timing is Everything
As noted in an article in the Roundup a few weeks ago, timing of precipitation will be key to rangeland performance this year. If rains come, the livestock industry in Wyoming is set up for a pretty good year. If, however, the precipitation is not as good as we would like, there will still be some opportunities for producers to have a good year.
But as with precipitation, market timing will be very important in determining success. The nice thing about market timing is you are in charge of deciding when to market your livestock, so at least you have some control over your own outcome in that regard.
Even though we are unsure as to how much moisture will come, now is a good time to start making contingency plans. As noted a few weeks ago, we are now in the middle of the critical time for precipitation. Mike and Dallas noted that now is the time to determine your forage production potential for the year, and start planning in case rain doesn’t come.
I entirely agree with their important dates. Now through June 1 is critical in terms of not only moisture, but markets as well. If we experience anything like last year, you will likely want to make your culling decisions prior to June 1. The earlier you get your culls to market, the better chance you have of beating the downturn in prices. Supply restrictions will likely keep national cattle prices strong, but local events, such as drought, can put downward pressure on local markets.
The graph below shows slaughter cattle prices for Wyoming in 2012. As you can see, prices peaked in May and dropped through the summer. Therefore, if we don’t get adequate moisture, you will want to get your culls to market before your neighbors. I don’t think I’d wait much longer than May 15 to pull the trigger on these decisions.
On the other hand, if you do end up with enough forage to make it through the summer, you may want to think about how you’re going to market your calves this fall.
The recent USDA announcements of higher than expected existing corn stocks and near record corn acres likely to be planted, coupled with the recent precipitation forecast that drought may ease in the eastern corn belt, have put downward pressure on corn futures, which in turn has had a positive impact on cattle futures.
While some of you are likely to be optimistic and will want to wait to see cash prices this fall, remember this time last year we were also expecting record corn harvests and low corn price expectations. So, now might be a good time to try to lock in some livestock prices while the outlook is good.
I wouldn’t contract all of your calves, but somewhere around one-quarter to one-third of your calf crop. If the outlook continues to be good, you can contract more calves later in the summer and leave one-third to one-quarter for the cash market this fall. However, if conditions don’t improve as much as expected and increases in corn prices push cattle prices back down, you’ll be glad you have some of your calves locked in.
One tool that may be useful if you are considering forward contracting is beefbasis.com.
One of their menu options is “Forecasting Tools.” This tool allows you to determine an expected cash price you would receive based on expected market conditions. The forecast is based on which market, including Torrington or Riverton in Wyoming or markets in neighboring states, you would likely sell into, general animal characteristics and hopeful marketing date. While you will likely not get this price either in the cash market this fall or on a forward contract this summer, it should give you a starting point for negotiations.
As I write this article, the forecast for 550 pound steers sold in Torrington on Oct. 15 is $163 per hundredweight. While cash prices may exceed that number this fall, any negative impact on the nation’s corn production will likely put downward pressure on those prices.
In the end, this year should provide many opportunities. Whether you are forced to cull and are able to get your slaughter animals to market early, or if you have grass and are able to keep your calves until fall, timing your sales will likely determine how profitable you are.
Remember, there is no right decision. Some of you have higher risk tolerances and are able to gamble a little bit more, and some of you with equity or cash flow constraints would do better to lock in some prices at the expense of not realizing higher potential payoffs. Regardless, now is the time to think through these decisions so that you are able to pull the trigger whenever the market or Mother Nature sends the signal you’re looking for.