While cattle prices remain historically high, the 2025 market proved volatility can quickly erode margins.
“Given that the cattle cycle is set for a slow rebuilding phase, there is a reasonable expectation that the market will remain supported for the next few years,” says James Mitchell, University of Arkansas agricultural economist in the Cattle Market Notes Weekly. “But as fall 2025 showed us, cattle markets are not immune to volatility.”
Livestock Risk Protection (LRP) and option premiums are not cheap because cattle prices are high, Mitchell explains.
“This reality has led some to question whether price risk management is worth it at today’s price levels,” he says.
Case Study: The Value of LRP in Fall 2025
To demonstrate the impact of price risk management, Mitchell shares this real-world scenario from Arkansas in late August 2025:
The Setup: A producer planned to sell 550 lb. steers in November
- The Policy: Purchased LRP at a $394/cwt. coverage price (100% level)
- The Cost: $12/cwt. premium
- The Market Shift: By Nov. 24, the actual ending value dropped to $365/cwt.
The Result:
- Indemnity Triggered: $29/cwt.
- Net Return: $17/cwt. (after premium)
- Per Head Value: $94/head added value
- Total Per Load: ~$8,500 in protection
Without LRP, the cash price for a 550 lb. steer was $378/cwt. for the week ending Nov. 21. With LRP, the realized price rose to $395/cwt.
Fall 2025 was a reminder of how sensitive the cattle market is to news and surprises. A look at the November 2025 Feeder Cattle futures contract and weekly cash prices (see below) in Arkansas highlight just how quickly prices can move.
Mitchell admits the example in this article perfectly times the purchase of LRP with the fall 2025 downturn in cattle prices.
“Buying LRP earlier last year would not have triggered an indemnity because the market rallied leading up to the fall,” he says.
Why 2026 Price Risk is Different
While the cattle cycle suggests a slow rebuilding phase with supported prices, structural risks remain. Mitchell explains how the math of risk has shifted:
- More Dollars at Risk: A $20/cwt. drop is the same percentage loss regardless of the market, but at today’s record prices, the total dollar loss per operation is significantly higher.
- Limited Flexibility: With high interest rates and debt obligations from herd expansion, many producers cannot afford to absorb a $30/cwt. swing.
- Volatility is the New Normal: Market shocks from policy changes, trade shifts or weather events happen faster than in previous cycles.
Takeaway for Producers
“LRP is not about increasing the odds of an indemnity payment or maximizing profit,” Mitchell says. “It establishes a price floor and reduces downside risk.”
LRP is not designed to beat the market or guarantee a profit every year. Its primary function is to establish a price floor. Using LRP to cover your breakeven point or secure a target return is a more sustainable strategy than attempting to time market peaks.