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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

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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


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Thanks to our partners Programs: The Georgia Beef Challenge Experience

  • Georgia Cattlemen’s Association

  • Georgia Department of Agriculture

  • Iowa State University

  • Tri-County Steer Carcass Futurity (TCSCF)

  • USDA – Agricultural Marketing Service


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Highlights of the Georgia Beef Challenge Programs: The Georgia Beef Challenge Experience

  • 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

    • 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.


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Growth of the Georgia Beef Challenge Programs: The Georgia Beef Challenge Experience


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How Does it Work? Programs: The Georgia Beef Challenge Experience

  • 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)


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History of Risk Management in the GBC Programs: The Georgia Beef Challenge Experience

  • 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


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Georgia Beef Challenge Risk Management Plan Programs: The Georgia Beef Challenge Experience

  • Risk Management Committee comprised of extension economists, beef specialists, and producers

  • Consignors approve pricing objectives at annual meeting

  • RMC implements the plan


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Pricing Objectives for 2004-2005 Programs: The Georgia Beef Challenge Experience

  • 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


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Making Decisions Programs: The Georgia Beef Challenge Experience

  • 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


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Caveats Programs: The Georgia Beef Challenge Experience

  • 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


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Alternatives Utilized Programs: The Georgia Beef Challenge Experience

  • Hedge

  • Put option

  • Synthetic put

  • Fence

  • ½ hedge


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Example Worksheets Programs: The Georgia Beef Challenge Experience

  • Example Report 1

  • Breakeven Example

  • Final Report


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Profits From Feeding Programs: The Georgia Beef Challenge Experience


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Lessons Learned – General Programs: The Georgia Beef Challenge Experience

  • Our genetics are as good as any

  • Preconditioning pays when it comes to shipping cattle

  • Price risk management is important


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Lessons Learned - Risk Management Programs: The Georgia Beef Challenge Experience

  • 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


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Lessons Learned – Risk Management Programs: The Georgia Beef Challenge Experience

  • There is a HUGE difference between a textbook hedge/option and the real world

  • Managing price risk on the input side is less straightforward

    • Hard to estimate physical needs

    • Timing of feed needs is difficult

    • Some type of cash strategy probably works best


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Lessons Learned – Risk Management Programs: The Georgia Beef Challenge Experience

  • 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


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Changes in Attitudes, Latitudes, and Behaviors Programs: The Georgia Beef Challenge Experience

  • 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


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Other Developments Programs: The Georgia Beef Challenge Experience

  • 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


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Summary Programs: The Georgia Beef Challenge Experience

  • 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!!


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Questions? Programs: The Georgia Beef Challenge Experience


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