The Impact of Extreme Weather on Cattle Feeding Profits

While large feedlots commonly hedge corn and fed cattle prices, weather remains the largest uncontrollable component of production risk. This research examines the economic losses to cattle feeding associated with extreme weather. Profit losses are assessed using nonlinear regressions that relate weather outcomes, based on the Comprehensive Climate Index ( Mader, Johnson, and Gaughan , 2010 ), and their impact on production variables. Actuarially fair insurance premium rates are derived for an insurance product designed to mitigate the potential cost of extreme weather. Finally, we discuss additional issues associated with using weather-index insurance products and insuring feedlot cattle against adverse weather.