Price Risk Management in Extension
Beef Carcass Evaluation Programs: The
Georgia Beef Challenge Experience
R. Curt Lacy, Patsie Cannon, Jim Collins,
John C. McKissick, and Robert L. Stewart
Department of Agricultural & Applied Economics, UGA
Department of Animal & Dairy Sciences, UGA
Georgia Cattlemen’s Association
Thanks to our partners
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Georgia Cattlemen’s Association
Georgia Department of Agriculture
Iowa State University
Tri-County Steer Carcass Futurity (TCSCF)
USDA – Agricultural Marketing Service
Highlights of the Georgia Beef
Challenge
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Began in 1991 as a way for producers to gather
information regarding the type of cattle they produce
Partnership between UGA, GA Cattlemen’s
Association, GA Department of Agriculture/USDA-AMS,
and other industry partners
Goals of the GBC
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Improve the marketability of Georgia-bred cattle by
establishing a database of feedlot performance and carcass
information
Provide educational information to Georgia cattlemen
regarding the carcass merit of their genetics and explore the
feasibility of retained ownership.
Growth of the Georgia Beef
Challenge
4000
3500
3000
2500
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1500
1000
500
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Head Consigned
How Does it Work?
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Producer completes and mails consignment form
Producer is told when and where to deliver his calves
At delivery cattle are weighed, graded, and assigned
a market price
Calves are shipped to IA
Members of the Tri-County Steer Futurity (TCSF) feed
the calves
The animals are harvested and marketed on a
carcass basis
Carcass and production data are returned to
producers along with a check (usually)
History of Risk Management in the
GBC
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In early years done on an ad-hoc basis
As numbers grew so did the RM implications
county agent began doing projections and
handling RM after consulting with GBC
personnel & consignors
He soon realized there had to be a better way
About 3 years ago a RM Committee was
formed to handle RM for the program
Georgia Beef Challenge Risk
Management Plan
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Risk Management Committee comprised of
extension economists, beef specialists, and
producers
Consignors approve pricing objectives at
annual meeting
RMC implements the plan
Pricing Objectives for 2004-2005
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Lock in a $50 profit when available
Buy enough protection to lock in value of
cattle when they left GA
Do whatever is necessary to limit losses to
$50/head
Making Decisions
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Patsie Cannon sends a report on the numbers,
weights, and sexes of cattle when they are shipped.
Curt Lacy uses UGA Custom Finishing Budgets to
estimate breakevens and estimated profits.
Risk Management committee discusses and
evaluates alternatives via phone or e-mail
A decision is made and implemented via our broker in
Iowa
Caveats
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Producers with a futures contract worth of cattle in the
same pen can do their own risk management
They can consult with the risk management
committee regarding alternatives
They can ask the risk management committee for
assistance in implementing their plan
They can use our broker in IA
Alternatives Utilized
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Hedge
Put option
Synthetic put
Fence
½ hedge
Example Worksheets
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Example Report 1
Breakeven Example
Final Report
Profits From Feeding
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Profits per Head
Profits Per Head for 2003-2004
$300.00
$250.00
$/Head
$200.00
$150.00
$100.00
$50.00
$$47.76/head profit average
$(50.00)
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Pen
Lessons Learned – General
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Our genetics are as good as any
Preconditioning pays when it comes to
shipping cattle
Price risk management is important
Lessons Learned - Risk
Management
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It is better to have a plan and to let “experts” implement
the plan
Producers need to a have a clear understanding of
what they are agreeing to
It is imperative that breakevens be calculated for every
pen
Past feedlot and carcass performance do play a role in
breakevens
Communications between feedlots, broker, and risk
management committee are crucial
Lessons Learned – Risk
Management
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There is a HUGE difference between a
textbook hedge/option and the real world
Managing price risk on the input side is less
straightforward
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Hard to estimate physical needs
Timing of feed needs is difficult
Some type of cash strategy probably works best
Lessons Learned – Risk
Management
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Live Cattle options are different from grains
Often there is very little liquidity at the strike
price you want
Sometimes delivery dates make you exit early
Timing of sales can create “opportunities” for
hedging or options
Changes in Attitudes, Latitudes,
and Behaviors
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Some producers have:
Learned that not everyone can be above
average
Decided to focus on raising high quality feeder
calves
Changed genetics
Started preconditioning and vaccinating
Developed their own risk management plans
Other Developments
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Resulted in cattle marketing workshops
Some collective feeder cattle sales now require
some form of carcass data
Some producers raising discounted feeder
cattle have begun retaining ownership
Cattle shipped in 2004-2005 have EID tags
USDA-AMS FSMIP Grant
Summary
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GBC has been a very educational program for
beef cattle producers
Risk management makes the carcass
information gathering process less expensive
There is considerable difference in teaching
risk management and actually doing it!!