Marbles and the Cattle Market

  If you read online you might have heard some rumbling about how Livestock Risk Protection (LRP) has affected the futures market.  There may be some truth to this, but it is not nearly to the extent that it can be played up to be.

  This reminds me of a story where two older lads were playing marbles in the barn lot. They were older and had obtained several marbles over the years by playing their games.  Their younger brothers just had a few marbles, but were never invited to play with the older boys. 

  One day the father showed up to the game and explained to the older boys that the younger boys needed to be able to play too. He reached into his pocket and gave each of the younger boys a ball bearing to be used as the Aggie. 

  This was protested by the older boys because now the younger boys had the same opportunity to win some additional marbles that had always been only reserved for them. This is what the complaints have been about in the cattle markets. 

  Everyone knows that the markets have retraced over the last few months, but when this happened some of the small producers had  protected themselves with price floors established by LRP.  Yes, LRP is the aggie in this game. 

  Instead of just having price protection for the big commercial operations, packers, hedge funds and the ultra-big producers; now, even small players can have price protection that is established by the futures market.  Every one of the players know that risk management is an important element in staying profitable. The big guys are no longer in the game by themselves. By having the small guys in the game, it puts more marbles in the circle or in this case, more volume in the market.  As each player shoots, they still can win but now there is a bigger pie. 

  The older boys see this is working for some of the little fellas so now there is some concern that their prize at the end of the day could be a little less.

  In my opinion, LRP is probably the best thing that has happened to crop insurance in many years.  Today a young person can go to the banker and secure the price floor that they need on their livestock to secure the financing they need to run the farm. No longer will they have to trade complicated contracts of 50,000lbs. Now they can establish coverage on the number of head that they produce, even if it is only one.

  We have heard it repeatedly that a young person has so many barriers to get into agriculture that it is nearly impossible. Land prices that are high, along with elevated equipment and input expenses have all added to these challenges. However, the opportunities in animal agriculture have burst wide open with these new tools and some players just don’t want to share in the game.  

  Are there still challenges to get into animal agriculture? You bet there is!  Any manager of livestock that has been successful knows that it takes daily work to care for livestock properly. It takes capital to get started and even more as the animals grow. The pay day may come sooner than in row crop agriculture but the work load with livestock can be much more intense. 

  I use LRP regularly on my operation.  In September of 2023 we saw the opportunity to place a price floor on feeder cattle at $260.  This price established a good profit regardless of what the market did. Today, this contract will be coming due and we will have established and additional $30/cwt for the livestock we have been feeding. With these calves nearing 800 pounds that amounts to an additional $240 per head by using LRP.  Yes, I am the small guy. Did I collect extra marbles by playing the risk management game with the big boys? Yes!  Who got hurt? The answer is no one.  There is room in this risk management game for all players. Anybody could have established their goals using similar tools.

  In the future this program will grow exceptionally. Yes, the big players will not like it, but the family farms are here to stay through products like LRP.


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