Jim Robb of the Livestock Marketing Information Center told producers at the Idaho Cattle Association (ICA) Summer Round-Up June 24 in Idaho Falls, by 2016 there could be a peak in cattle prices or even earlier if there is a shock in the system. However, despite the gradual change occurring in the market slope, Robb remains optimistic.
“There is always a top in the market,” he said. “ A gradual decline from record high prices is a long way down to $2 calves. As we look ahead on this cattle cycle, we might not have to push calves down to $2 again as we work through this deal.”
Robb said the industry is at the turning point of the cycle. Which means by Jan. 1, 2015, the U.S. herd numbers may stop declining – could be up a half of a percent or down a half of a percent. But the industry is right in the midst of a turning point barring another drought or another change in the cycle, he said.
Unless there is a debacle in the system, beef prices shouldn’t collapse in the next few years, Robb said. Beef prices may no longer be on the upward trajectory, but it doesn’t mean producers can’t make money; the market will just erode down if predictions are correct, he said.
Robb pointed out that because of the demand for hamburger in the U.S., the cull cow market could continue to set record prices. He advised producers to take advantage of cull cows and try to time the market seasonality.
He also advised producers to look at how they can get more out of their existing resources and position their operation for the next 10 years for growth. It is important producers also know how their cattle are performing in the feedlot, he said.
If an operation has reputation cattle, the producer needs to negotiate with the cattle feeder and come to a mutual agreement. Don’t get underpaid, he said. The producer should know the cost of production and how they should be priced.
“It’s a pretty optimistic scenario,” he said. “We will have these unknown events that are going to happen, be prepared.”
Brett Crosby of Custom Ag Solutions advised producers at the ICA Summer Round-Up to consider implementing a market risk management tool in their operation. He discussed the benefits and limitations of insurance programs, forward contracts and futures markets in today’s industry.
Crosby said that about 20 percent of all producers use futures markets. Most producers don’t use futures markets because they don’t know how and they don’t understand them, he said.
“I am not saying futures markets are for everybody,” he said. “But they are another tool that you can use to protect yourself against risk.”
In the spring of 2008, the industry set record high prices, and toward the end of that year prices had dropped over 20 percent.
“Things can be really good and turn really bad in a hurry,” he said.
Risk is a function of variance; the more something changes the more risky it is. The cattle market right now is in a lot of movement, so the industry is in a situation where prices can change quickly, he said.
A futures market is basically an agreement to deliver a specific quantity and a specific quality of a commodity at a specific date and location, Crosby said. Similar to a forward contract, the difference is standardization. With a forward contract there are different specifications; there can be different weights, delivery dates, etc. With a futures market there is only one type, he said.
Futures markets are a form of price discovery. Producers can see what the market expects the price to be, and that’s how decisions can be made to take the price or leave the price, he said.
A price peak may be around the corner, but unless there is a market shock, the future of the beef industry remains bright. Producers should take necessary precautions and prepare for difficult times. 
PHOTO
Jim Robb, director of the Livestock Marketing Information Center, gives an overview of the beef market and where it is headed. Photo by Cassidy Woolsey.
-From CASSIDY WOOLSEY news release
