There are few historical events that can be compared to the current COVID-19 pandemic in terms of their impact on society and the economy. The result for agriculture has been profound. Just this week, a group of livestock marketing economists headed by Derrell Peel, Ph.D., Oklahoma State University, estimated that the cattle industry has been hit to the tune of $13.6 billion.
In addition, the market for yearling cattle across the United States has dropped nearly 25 percent since the middle of January.
In agriculture, tools exist to help manage price risk. In the current environment, however, these tools offer little to protect against a declining market because the market is already depressed.
Below we offer 5 recommendations that cattle producers can implement to help manage depressed markets:
1. Start planning what to cut now.
What producers have the most control over is their expenses. Judicious cost control is the best strategy to minimize the financial impact to the farm business.
2. Research markets.
When selling cattle, research different markets. There are reliable market reports available for many of the public auction markets throughout the country.
These can be used to learn which markets are paying the most for the weight and class of cattle being considered for market. If retained ownership is a consideration, producers should complete the following calculation: what is the market paying for gain compared to the cost to put it on.
3. Stay connected with lenders.
If a producer has debt, keeping in close communication with the lender is important. No one likes bad news surprises. Many financial institution government regulators are issuing guidance softening regulations allowing financial institutions to have more flexibility to work with distressed customers.
4. Keep good records.
There are and will be several government aid opportunities for producers. All will require some kind of documentation of items such as cattle inventory on certain dates, cattle sale information, past self-employment income and payroll records.
5. Seek out credible sources of market outlook and stay informed.
A producer can spend time now learning about the different risk management tools so that they are ready when the markets move higher. Try to look to the future and position the operation to take advantage of upswings in the market. It will not be easy to know when that price recovery might happen.