AMES, Iowa — The market for livestock has been a bit of a rollercoaster over the last few years.
Strong prices during 2014 and early 2015 have given way to lower prices that are more in line with what producers saw from 2010-13.
“Producers certainly have reinvested some of the profits of the last several years into their operations,” said Lee Schulz, livestock economist with Iowa State University Extension and Outreach.
“The major downturn in prices has likely changed the payback period, but if these investments improved productivity and efficiency, thereby lowering costs, they will pay dividends. This is part of the reason that even in the ‘bad years’ some producers are making money,” he said.
Even with the lower commodity prices there are opportunities available such as potential hedge profits on fall feeder cattle and summer hog marketing, Schulz explained.
While a major rebound in prices is not likely, the economic forecast does offer a bit more stability.
“The periods of big adjustments in prices are likely behind us,” Schulz said. “If this is the case, decision making should be better informed as confidence in making projections improved and the ability to decipher opportunity and risk has been enhanced.”
An obvious sign is markets returning to a more typical behavior allowing producers and analysts to better understand and anticipate market movements, he said.
In these times of small margins, knowing and understanding all the aspects of a farm business is critical to having success.
“This is the time to be looking very critically for any opportunity to find profitable margins; having a marketing strategy and price risk management plan in place is key,” Schulz said.
Understanding costs and break-even prices is absolutely critical.
“Go back to your records and budgets from previous years to understand what your costs are,” Schulz said.
Establish price risk management objectives by starting with the cost of production and the amount of risk the operation can withstand, said Schulz.