Turbulent market swings, supply chain hiccups, crazy increases in feed costs and wild weather have all led to farmers raising the smallest American cattle population since the 1970s. Perhaps that means you’re ready to start rebuilding your herd. But is your operation ready to do so?

That was the topic addressed by Makenzie Billings of CME Group and Dave Weaber, a senior research analyst with Terrain, at CattleCon earlier this year. Their main focus was risk management when rebuilding.

“Risk arises from ownership of inventories and variable, uncertain prices,” Billings explained. If you’re not willing to take on that risk yourself, “transferring risk is done through the process of hedging – allowing another entity to take on the risk for you.”

But hedging tends to work better on bigger scales. For smaller operations, farmers often have to take on all the risk themselves. They need to do so safely, though, as Weaber noted.

“If we do risk management without planning, that’s like going to Vegas and splitting queens,” he said. It’s the difference between definitely winning – or having two chances to lose.

Beef cattle producers are dealing with a crescendo of the market, Weaber said, so they need to figure out how to both expand and preserve capital. Herd rebuilding has been so slow because of the latter; farmers are dealing with higher long-term debt interest rates, paying down debt, increasing their reserves of working capital and simply managing costs.

Weaber said farmers need to figure out if they are working “in” the business or “on” the business. “We’re good in the day-to-day stuff, not the big picture stuff,” he said. “Readiness is planning and work ‘on’ the business. You need to make time to dedicate to working on the business as a whole.”

He suggested breaking operational plans apart to manage them separately – but building them to be mutually supportive of your goal and the overall mission of the operation.

Raising beef cattle means much more than breeding, birthing, feeding and selling. There are a lot of operational plans to consider:

  • Land resource/grazing plan
  • Herd health/vet care/relationship plan
  • Herd nutrition plan (taking into account weather, feed resources and prices)
  • Breeding and genetic strategy plan
  • Legal/succession plan
  • Financial plan (looking at asset management, loans, accounting, taxes and budgets)
  • Livestock/product marketing plan (factoring in cattle cycle timing, price outlooks, trade demand and feed prices)
  • Insurance plan (for property, liability, casualty, life and livestock)
  • Human resources/people management/benefits plan
  • Risk management/equity preservation plan

“You have to begin with the end in mind – and understand what your risk really is before doing anything,” Weaber said. “And remember that doing nothing is still doing something.”

What is a risk management plan? Defined simply, it transfers or modifies risk exposure, according to Weaber. Your plan should include your risk tolerance, your ultimate goals, how you will preserve equity, a defined risk margin or capital investment, the products available to help you reach your goals and strategy development.

That might seem like a lot, but “we’re not John Wayne,” Weaber said. “That rugged individualism? No one can do it all.” He recommended finding a good team to assist you with your risk management – and rebuilding your herd.

by Courtney Llewellyn