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Cattle feeding today not for the fainthearted
As fed cattle prices have soared to record levels in recent weeks, so has the level of volatility in the cattle feeding business.
Cattle feeder Kent Pruismann of Rock Valley, Iowa says the “fear factor” is much greater with cattle prices and input costs at current levels.
“Overnight we can have a huge move in our commodity markets because of a lot of outside influences,” says Pruismann, “and one of them being a lot of hedge fund money coming into this market. I mean it can move—when they change their mind—our markets move considerably in a 24-hour period.
Pruismann says he’s spending more time on risk management.
“I’ve done a lot more hedging on the Chicago Board of Trade for input costs—and on the Chicago Merc as far as locking in a price on our cattle,” he says.
And that requires a banker who also understands risk management, “because sometimes our margin requirements can be substantial as we take a position in this market and it moves against us.”
While he’s optimistic about the future, Pruismann says he’s also being cautious.
“We are offered (feeder) cattle for delivery this fall that we need to make a decision on—if that’s something we want to do—and the prices are very, very high,” he says, “and so, personally, I sit making the determination if there is more upside potential—and I’m very cautious at this point because, in my opinion, there’s a lot more downside risk than upside potential.”
Pruismann owns a three-thousand head feedlot in northwest Iowa.
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