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Managing risk in livestock production

A livestock market analyst says the recent bump in commodity prices is a good time for producers to reevaluate their risk management options.

University of Missouri’s Scott Brown says prices could go higher – but it could be risky to wait.  “You know if you’re working about markets going higher, maybe you don’t want a straight futures contract,” he says.  “Maybe you don’t want to use options.  But doing nothing and watching those prices be higher and then erode away is a risk management plan that doesn’t work very well.”

He tells Brownfield producers have to know their break even costs.  “If they don’t know their production costs first,” he says.  “It’s hard to know whether you’re locking in any kind of reasonable returns.”

Brown says at these lower prices – producers need to take advantage of price runs.  “Being able to market a portion or forward contracting a portion,” he says.  “Even using options to protect a portion (of profits) might not be such a bad strategy.”

AUDIO: Scott Brown, Risk Management