Controlling the Cycle

There is a well known cycle in the prices of cattle. This cycle causes serious risks for producers, leading occasionally to bankruptcy of producers, packing houses, and their lenders. It also leads occasionally to shortages and high prices for consumers. The uncertainty of the cycle raises costs for everyone. Lenders must charge higher rates to cattle producers to reflect the possibility of bankruptcy due to unforeseen and untimely reductions in prices. Producers must either hedge against price declines to the extent possible by use of the futures markets, or must bear the full risk themselves. In all cases, producers must pass along the costs of borrowing, hedging and risk bearing to the consumers if they are to survive and remain profitable over the long run.