Challenges in Agriculture

Today we are faced with more changes in agriculture than ever before. The Corona virus has brought attention to the vulnerability of our entire economic, political and social systems. I have never seen a time in our country’s history when it was harder to get factual information. The air waves are filled with opinions, hate speech and dooms day profits all pushing a political agenda. Congress is giving away money it does not have to subsidize and encouraging unemployment. I just do not get it.
What we must remember is that the virus is real. If it is as dangerous as we are led to believe is up for question, but the impact that it has on our economy is definitely felt throughout all of agriculture. Let’s look at one commodity and see what has happened.
In late January many producers, including myself, were looking at establishing a minimum price floor on our fall born calves for the August sales period. We were able to establish good profits, so we used the LRP program to establish a minimum price of $154.63 per cwt for our 750-800 pound calves. This market was based off the August 2020 feeder cattle futures contract.
The news in the weeks that followed was filled with virus stories that originated in China. The market reacted $6 to the downside for next couple of weeks as the World Health Organization stumbled over the facts and politics of whether this was a serious issue or not.
The following weeks found that the virus was spreading over the world. Even though this news was negative, the markets rebounded about 50% of the previous losses. Then came the news of packing plant closures which caused the markets to free fall.
On April 10, the Aug 2020 feeder cattle futures had fallen to $110. This was a $44 drop in less than 90 days. This market move took unprotected producers from a profitable position to a very negative position in a matter of weeks. Since April 10, we have worked our way back to the $140s. At this level producers are in a better position, but the threat is not gone.
This week we are hearing rumblings of how the virus is again spreading and the threat of businesses being forced to close yet again. If this happens should we expect different economic results? I don’t think so. It is my fear that we will see disruptions in the supply chain yet again this fall. These disruptions will affect all livestock and other commodity prices. Today we are not at high prices, but we have reached acceptable levels in most commodities with the exclusion of hogs.
Since the crisis, several producers have seen the opportunity and have opened smaller packing companies throughout the United States. Even here in Missouri there is news of new plants being built and reopening of existing plants to process beef. It needs to be understood that these plants cannot start to replace the supply of the big packers, but it does provide an emergency outlet in some cases. It is my hope that these plants can find a niche market and be successful.
All livestock producers should be looking at LRP or other risk management tools in these uncertain times. Today it is my goal to establish price floors by using LRP on all my livestock when it can be done in a profitable position. If you have never used price protection products, I would encourage you to call our office and let us answer any questions that you might have. We have the expertise because we use them in our operations as well as in our customers operations daily.

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