Beef Buzz News
Cattle Producers Can Strategically Utilize the LRP Program to Secure ProfitThu, 21 Apr 2022 06:49:24 CDT
Ron Hays, Senior Farm and Ranch Broadcaster, catches up with Dakota Moss, operator of Livestock Risk Services out of the historic Oklahoma National Stockyards. Moss continues yesterday’s Beef Buzz’s conversation about livestock risk protection.
Moss said while the futures market utilizes feeder and live cattle futures for yearling weight cattle on the feeder side, the LRP program can lock in some lighter-weight cattle.
“Essentially what USDA does, is the cattle feeder futures are based on a seven to nine weight steer, and the cattle feeder cash index is also based on a seven to nine weight steer,” Moss said. “So, USDA has adjustment factors they apply to these values to get pricing for heifers under six weight and steers under six weight.
This way, Moss said, if a 550 lb. steer is being marketed, the higher value a lighter weight steer brings is accounted for.
“They take 110% of the futures; they also take 110% of the cash index in the back end to settle on, just to account for the higher value a lighter weight steer has,” Moss said.
When looking at a six-weight and under heifer, Moss said we are looking at 100% of the futures and 100% of the index on the backend when we settle, and it’s just 10% back from the steers.
“So, the heifers are a little back, just 10% from the steers, but USDA is trying to account for how those cattle get bought and sold,” Moss said. “Something else that many producers, especially cow-calf producers, need to know about is there is an unborn livestock contract in this program.”
In the unborn livestock contract, Moss said if a cow-calf producer is calving in the spring and he doesn’t know his true numbers yet, he can still lock in a floor price on the unborn contract endorsement for the fall months, then they are splitting the difference between the lightweight steers and lightweight heifers and doing 105% of the board, and 105% of the cash index in the back end.
“So, if they have a pretty good idea of how many calves they usually market on average, they can go ahead and jump out there and lock in that great futures price that we can still see on the fall board and take ahold of that to protect themselves,” Moss said.
Moss greatly encourages cattle producers to start looking ahead in the future to get a profit goal in mind for their cattle operation and use this or other tools to secure that.
“I know there is still a lot of potential and a lot of optimism for those fall months, but nobody has a crystal ball and can tell what is going to happen in the future,” Moss said. “If we could go ahead and lock that in, and know our downside is protected, to where hopefully we aren’t going to lose money on these cattle, and hopefully make a good amount of money on those cattle, this greatly gives the opportunity to do that.”
One thing producers need to understand about this program, Moss said, is that it doesn’t cost anything upfront. If someone wants to sit down with us and look at locking in that floor price for the coming months this fall, he added that it doesn’t cost anything upfront.
“USDA has it set up to where if we jump out to say, October, for example, and lock in a floor price on a calf crop, that producer won’t receive a bill for this until the first of the following month after the maturity date we have locked in,” Moss said. “So, it’s a back-end cost, not a front-end cost.”
Moss said that producers can lock in a floor price and know what they are covered for and how much it will cost, and the cost will not fluctuate. He added that they wouldn’t see a bill until they market their calf crop and have the cash flow to pay that bill.
“From what I have seen over the past couple of years, this is USDA’s go-to for price risk management for cattle producers,” Moss said.
Moss is located at Livestock Risk Services at the Oklahoma National Stockyards. Livestock Risk Services also has agents in Ardmore and Durant, Okla., and Texarkana, Ark.
“We are working very diligently to get more boots on the ground in parts of the state where people will have somebody who they can get face-to-face with to work with on this to help cover their cattle operation and stay in business,” Moss said.
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