Wild Temperature Swings Challenge Livestock Producers
For the most part, Midwest weather conditions in December and January were mild. Many livestock producers enjoyed temperatures that remained stable; not too cold, not too warm, and not too wet. However, recent fluctuations of more than 70°F. over the last two weeks with snow and rain have raised havoc for livestock production. Record cold followed by unseasonably warm temperatures is not a good recipe for animal health, especially during the winter months.
Wild swings in temperature may bring the biggest concern to the dairy industry. Small calves are most vulnerable and subject to pneumonia. The old saying is when it rains, it pours. This year, you could say when it rains, it makes for messy barnyards and muddy feedlots. What does it all mean? For the livestock producer, it means more cost and less production. The loss of calves is likely, and the cost of taking care of sick animals is a financial burden. The severe cold also limited hauling of market-ready animals, resulting in more feed consumption.
From the corn producer perspective, it does potentially mean more demand. Livestock burns a lot of calories when fighting weather. Weight gain is often limited for cattle in feedlots, as they struggle to stay alive. Sometimes cattle lose weight in adverse weather situations. One or two days of additional feed usage may eventually surface on the USDA’s monthly supply and demand estimates in the form of tightening carryout.
While recent weather fluctuations have been significant, many row-crop producers have been mostly immune, due to the time of year. However, winter wheat producers have concerns, as limited snow cover leaves the crop vulnerable to cold weather, and that could have an adverse impact on production. Last fall’s less-than-ideal weather made it difficult for field preparation and fertilizer application. As spring approaches, corn and soybean farmers will need to get an early start to make up for the time they lost last fall. And a wet spring could be disastrous. Delivering enough fertilizer to farmers in a short window of time could be a logistical nightmare. Get ready for potential fireworks in corn prices.
Continuously low commodity prices in recent years have challenged farmers. The exception may be the cattle market, which has experienced improving prices. However, expectations for increased supplies could turn prices lower. Prepare yourself for anything. Watch for price rallies and be ready to defend increases by using the right tool at the right time. For some, this may be forward contracting and for others, simply buying a put option. If using futures to hedge, understand that margin calls could be a good problem. It could mean you have additional selling opportunities for unpriced product. Spend time with your lender this winter, establishing a line of credit. This will prepare you to market into (what could be) more volatile markets with confidence and cash flow to back up your positions.
If you have questions or comments, contact Top Farmer at 1-800-334-9779, ext 129.
Futures trading is not for everyone. The risk of loss in trading is substantial. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. Past performance is not necessarily indicative of future results.