Do you want to take more control over your operation’s profits?
The first step in developing a marketing plan is to determine the cost of producing the cattle to be sold. Divide the total cost over the number of animals that will be sold to establish a breakeven benchmark. While the marketing objective may be to maximize selling price, it will help to know what is needed to keep the business profitable.
The second step is to assess the amount of risk tolerance of both the operation and the cattle owner. If the operation or the cattle owner is fearful of a downturn in the market before the cattle are sold some steps for risk management should be taken. Choosing the best method for marketing risk will depend on the size of the operation and number of marketing venues available. While the simplest marketing plan may be to deliver cattle at the local cattle auction and take whatever the market will offer that day, it also makes the producer a “price taker” with little say in the price negotiation.
Proactive marketers will not only follow the market trends well in advance of the expected sale time, but also take steps to add value to the cattle and establish price guarantees when the market reaches a perceived apex.
As a means of trying to ensure a price guarantee, forward pricing cattle can be done in a variety of methods, the simplest method being a forward contract. The point of forward pricing is not only to limit market risk, but to also to strike when the iron is hot. If cattle prices are predicted to be higher when the cattle will be marketed, rather than waiting for that market price to come to you, try to establish some guarantee that price will still be there when the cattle are ready.
Forward contracts and futures market hedges will lock in a price and are the best protection from decline in the market. If only a price floor is desired with the opportunity to profit from a market upturn then purchasing a futures put option or feeder cattle price insurance from your insurance agent may be the best choice.
If you’re hoping to lock in a higher market price in other ways, feeder cattle preconditioning and other value-added programs are worth understanding. Third-party preconditioning programs such as the
To evaluate your operation’s marketing and risk management techniques, check out the