There is always a lot of risk in the world of cattle production, and the risk is even higher for small ranchers versus franchises. Raising a large cattle herd is not the only challenge because cattle pricing varies throughout key market months in Colorado and without proper cattle price risk management, many smaller ranchers find themselves in perilous financial situations. While many old-fashioned ranchers may take a wait and see approach, there is a lot to be said to proper risk management assessments.
First off, cattle producers in Colorado need to have an accurate look at their financial situations, this is even more true for families. Proper cattle price risk management helps reduce income variability, which will allow families to better organize and plan their financial futures. When you reduce the variability of income it is easier to assess debt payments versus family living expenses and see areas that may provide for operation growth. Ideally most cattle producers would like to grow their operations to increase profits.
At the very least, proper pricing risk management can help a rancher in Colorado discern the minimum income level that is required each year to meet fixed expenses and family living expenses. This ensures that the cattle operation will be able to survive every year at the very least. Understanding how much loss a company can incur without folding is fundamental to a good price risk management plan.
This type of plan can be created by weighing the costs of production versus the amount of risk that a cattle rancher can incur. Producers then can look at futures markets and hedge strategies to get prices that are close to their ideal costs. Since the market fluctuates, timing and strategy play a large role in final outcomes.
Compass AG Solutions in Fort Collins, CO, is a risk management company that is formed solely by people with experience in the agriculture industry. The team represents hundreds of thousands of cattle that helps create a tailored cattle price risk management approach for cattle operations.