Risk management goes beyond hedges to animal health
This year’s stocker and backgrounder segment will see great opportunities in a market with upward momentum. So far, the cattle market this year has been almost unbelievable, with many producers asking, How long will it last?
Derrell Peel, Oklahoma State University livestock economist, says the higher prices we’ve been seeing in recent months aren’t just a flash in the pan. "These conditions have been building for years, and there are solid reasons why we are where we are with prices. I just don’t see a big bust coming in terms of pricing."
Stockers and backgrounders will need to be on watch this spring and summer if drought conditions force a premature market glut as cattle move into feedyards earlier. That could create a temporary price glitch, but if you can spread out the marketing of the calves, you can also reduce some of the risk from a temporary price shrink.
In an upward momentum market, it is important to formulate a risk management plan that puts in a price floor without limiting profit potential.
Peel says that a risk management plan in this kind of market is as difficult to deal with as one during a declining market. The challenge is to not overhedge.
"Some lenders may require a level of hedging in order to obtain a loan," he says. It’s up to cattle producers to make sure the lender is involved, understands the current market and doesn’t tie a producer’s hands too much with hedging requirements as long as the market is moving up.
"The best risk management strategy for backgrounders and stockers this year is to manage cost of production and keep calves alive and healthy," Peel says. Making sure that cattle stay alive and healthy will enable stockers and backgrounders to maximize gains and ensure that every animal purchased makes it to market.
Tim Spiva knows the benefits of a good animal health program, especially in this market climate. He backgrounds 10,000 to 15,000 stockers each year. Keeping death loss below 2% is a challenge, especially with commingled groups of 400-lb. calves.
Spiva, owner of Triangle Calf Growers in Wildor-ado, Texas, meets the challenge with an animal health protocol that boosts the animals’ immunity on arrival. He works with his veterinarian to establish the right program given the type of cattle he purchases and the region of the country he lives in.
"We treat all our cattle the day after they arrive," Spiva says. Since most of the cattle come from unknown backgrounds and are commingled, building immunity right away is essential. In the chute, the calves receive vaccines and an antibiotic treatment to help fight infections.
This year, Spiva is using an intranasal vaccine to build immunity to respiratory diseases more quickly. He says the intranasal administration takes only a few more seconds compared to an injection.
"We try to keep death loss under 2%, but there’s no guarantee," he says. That’s why he puts so much effort into arrival treatments and follows up with revaccinations 10 to 14 days later, when cattle are castrated.
Nutrition is also key to getting stockers primed for pastures. Getting cattle to eat and drink on arrival is important, and having good-quality hay in the pens is necessary to get the rumen functioning again after cattle have been transported.
This year, due to drought in some areas, stockers may need backgrounding rations or supplemental feed sooner than expected. On arrival, get calves used to a bunk. "The majority of calves sold have no idea what a feedbunk looks like, let alone a processing facility," says Zeb Prawl, a ruminant nutritionist with Great Plains Livestock Consulting, Inc., in Eagle, Neb.
To get them used to the bunk, he says, put hay in the bunk rather than a bale ring in the receiving pen. "By having it in the bunk, you know how much the cattle eat and can limit hay to make sure they eat the high-quality total mixed ration provided to them."
When a ration is needed, provide the right amount. "One of the most common mistakes is to provide them with too much feed," Prawl says. "With distillers’ grains, it is easy to put together diets that are high in protein [16% to 18% crude protein on a dry matter basis], moderate in energy [46 to 48 Mcal/cwt. NEg] and still be cost-effective. These rations can be fed at moderate amounts [up to 2% of body weight] and perform exceptionally well."