6 CALF News • August | September 2020 • www.calfnews.net W ith projections for losses of $6/cwt., or more for cattle going on feed in mid-summer, there aren’t many paths to potential profits. Price pressure from COVID-19 may not be as prolific after the spring’s Black Swan market. But risk management remains a priority, even if it only helps prevent more magnified losses. It’s still too soon to refer to markets as “post-COVID-19.” The pandemic was stampeding across many states in mid-July. State fairs were canceled in Texas, Oklahoma, Kansas and other states. There remained questions about whether schools would start on time, if teaching would go back online and if classrooms would remain darkened. Projected closeouts for fed cattle were also dreary. With a finished breakeven price pegged at about $113/cwt., a 750- lb. steer placed in mid-July and fed 150 days in the Texas Panhandle showed a loss of $6/cwt. That was based off live cattle futures price trading at about $107 – penciling a loss of about $82 per head. Prior to the coronavirus, fed prices were forecast to average about $120 for 2020. This price came from CattleFax during its protein outlook seminar at the Cattle Industry Convention in early February. But by mid-March COVID-19 had taken over. August futures dipped from above $110 to $103. By mid-April, they scraped $80 – and didn’t recover to $103 until July 15. If cattle had not been hedged before the disastrous markets, losses hit well over $200 per head as cash cattle hit low marks and were at $94/cwt., in mid-July. COVID-generated Paycheck Protection Program checks from the government helped offset part of the loss, but not near enough. As much as price risk management is needed, many producers and feeders remain weary of the hedging tools avail- able through the Chicago Mercantile Exchange (CME). However, there are options other than using a commodity broker (although most broker-analysts can provide sound marketing plans to soften the impact of an event like COVID-19, BSE or other so-called Black Swans). Livestock Risk Protection (LRP) LRP is offered through the U.S. Department of Agriculture (USDA) Risk Management Agency (RMA) to provide an insurance plan for fed cattle and feeder cattle. Like a straight futures hedge or option, it helps insure against declining prices. A variety of coverage levels and insurance periods are available to correspond with the time market- weight cattle would normally be sold. Bought through RMA-approved live- stock insurance agents, LRP premium rates, coverage prices and actual ending values are posted online daily at https://public.rma.usda.gov/livestockre- ports/main.aspx . Users will be guided through specific LRP prices based on their state and commodity type. Users may choose coverage prices ranging from 70 to 100 percent of the expected ending value. The lower the percentage covered, the lower the price premium. LRP’s website notes that at the end of the insurance period,“if the The State of Our Industry COVER STORY Price Protection Against COVID-19 Hedging in a Plague The LRP Fed Cattle program enables smaller cattle feeders to set a floor on prices of up to 4,000 head per year. By Larry Stalcup Contributing Editor Continued on page 8 RIGHT: Ag insurance agent Shari Holloway sees LRP coverage as a manageable way to protect cattle prices.
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