RANCHING Business
For example, assume a cattle sale was negotiated
at a price of $2.10 per pound at a base weight of 750 pounds with an $.08 slide and a 2 percent pencil shrink. On the morning of shipment the cattle weigh an
average of 740 pounds. After a 2 percent pencil shrink the pay weight is 725 pounds (740 pounds less (740 x .02 = 15) = 725 pounds). Unless a producer negotiated for the slide to be
applied both directions from the base, the price for the 725-pound calves is the same per pound as for 750-pound cattle. Assuming the slide is an accurate refl ection of the market, the producer missed out on $.02 per pound (750 - 725 = 25) x .08 = 2 or $.02). The cattle could have brought $2.12 per pound rather than $2.10 per pound or another $14.50/head. Additionally, choosing an auction market based
solely on proximity may not be the best strategy. “It is important to sell cattle in a venue where there
is strong demand for what you’re selling,” Childs says. For stocker operators this is generally a terminal market, where a large number of order buyers are competing for 700-pound to 900-pound cattle. More competition typically means higher prices. Auction markets located closer to feedyards often
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offer better prices for heavy stockers simply because there is less transportation cost to the feedyard. Feed- yards will generally bid the transportation cost savings into the cattle’s price. “It’s a good idea to check market reports in other areas
to see if the difference in price would justify the costs of transporting the cattle to those markets,” he says.
Managing risk Successful stocker operators also take advantage
of risk management tools. This is another piece of crucial knowledge which requires time and effort to understand. Volatile markets make the investment of time worthwhile. “Today, market swings of up to $40 per hundred
pounds (cwt) during the ownership period of cattle are not uncommon, making risk management tools as important as ear tags and good nutrition,” Childs says. Common price risk management tools include put
and call options, hedges, and Livestock Risk Protection programs. Some producers prefer buying options or using the Risk Management Agency’s Livestock Risk Protection products because they do not require any margin money after purchase. Other producers prefer
54 The Cattleman May 2015
thecattlemanmagazine.com
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