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Risk management helps farmers find the right balance

Farm-scene-with livestock -ghosted-money

For livestock producers, high grain prices along with other high input costs are making it harder to be profitable, said Lee Schulz, Extension livestock economist with Iowa State University.

“It’s not just feed costs that are up, it’s diesel, propane, gasoline, labor cost and availability, and machinery, equipment and repairs. Everything costs more today than it has,” he said.

While meat prices are up, they aren’t up as much as costs are for raising feeder cattle and hogs, Schulz said.

In 2014, also a time of higher costs, profits reached record highs.

“In 2022, it closer to break-even,” Schulz said.

Rarely are so many costs high at the same time

“There’s a lot of risk to manage,” Schulz said.

Some costs are going to continue to stay high. For example, labor costs won’t go down.

“People aren’t going to work for less,” he said

On the other hand, feed costs will likely go down at some point as the supply of corn and soybeans increases. And, fuel costs will likely see some fluctuations in coming months.

There is potential for an upside for beef producers as supplies shrink and demand stays strong, Schulz said.

The ag economist notes that returns are variable from farm to farm.

“Some producers make money in the worse times and some lose money in the best,” he said.

Livestock producers strive for a profitable cost-to-market ratio. They may not feed cattle to the heavier weights. Value must be considered. A producer may make more money by putting the expensive grain into the next batch of cattle as their rate of gain is better than finishing cattle heavier.

“It’s a better bang for the buck,” Schulz said.

Successful crop farmers are also finding the right balance in fertilizer applications. Using a little less fertilizer may lower yields slightly but not profit if the higher costs outweigh the yield advantage, Schulz said.

Knowing the cost of production in making these decisions is essential.

“You can’t manage, what you don’t measure,” he said.

Put options and hedging may be helpful tools now.

Managing the baseline risk can allow producers to take advantage of the upside, he said.

“For grain farmers, high input costs have raised break-even levels,” said University of Illinois ag economist Gary Schnitkey.

But at the same time, commodity prices are also high.

“As long as prices stay up there, farmers will be making a profit this year,” he said.

Many farmers locked in fertilizer prices last year before prices skyrocketed, which will help make this a profitable year, he said.

But there is the question of when corn and soybean prices will come down.

“Hopefully not this year. Maybe not next year,” Schnitkey said.

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Phyllis Coulter is Northern Illinois field editor, writing for Illinois Farmer Today, Iowa Farmer Today and Missouri Farmer Today.

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