Risk Management for Cattle Feedlots: Futures Buy and Sell Signals

In recent years, narrow profit margins in the cattle feeding business have increased the necessity of effectively managing risk, but especially price risk. The live cattle futures market is an effective tool in price risk management; a fact that more Iowa cattle feeders are realizing. Some producers, however, are hesitatnt to use futures positions, charging that futures are too complicated to use, margin calls are an added burden, and there is a lack of profit potential. These perceived challenges discourage some cattle growers from utilizing a variety of risk managment tools. The fact is, futures markets are very efficient, and there is not a simple, profitable strategy that will work every time. But there are strategies that can narrow the wide array of marketing alternatives into a more manageable set of choices to evaluate.