Agricultural Economics Department
Date of this Version
2016
Citation
University of Nebraska Extension Circular EC291 (2016)
Abstract
Introduction This publication is designed to help cattle producers with acquisition and merchandising decisions for calves and fed cattle. Western Nebraska prices for various sex and weights of cattle are provided. Feeder and live cattle futures bases are calculated using Nebraska average cash prices and the average nearby futures prices from the Chicago Mercantile Exchange.
Historical For the intended purposes of this publication, prices are reflected from 2001 through 2015. Historical prices prior to 2001 are available, but have lower bearing on current pricing strategies. Prices have been exceedingly volatile due to competition for feeds and short supply of feeders. Most charts, where appropriate, include a standard deviation, which is a reflection of volatility in that series; one standard deviation above or below the mean defines a range where prices are expected to occur 68 percent of the time. Therefore, the higher the standard deviation, the more variation and price risk.
Indexes Indexes were calculated using a 12-month average. This method minimizes short-term influences, cycles, and long-term trends on prices to give producers a clearer picture of average monthly prices as they relate to the five-year average price for that month over time. An index number less than 100 implies that prices are usually lower in that month than the average annual price. For example, in Table 1 the index of 1.001 in January for 400–500 weight feeder steers indicates that over the last five years, January prices for this weight cattle are just above the annual average for the year. The implication is that marketing or acquiring 4–5 weight feeder steers in January results in price basically equivalent to the average price for the year.
Basis Regardless of the form price protection (hedge) takes, basis is usually involved. Properly and conservatively estimating basis minimizes unanticipated events when the hedge is lifted and the livestock are sold. The best way to accurately compute basis is to look at historical levels for the appropriate weight in the month the sale is planned. In this publication, basis is: local cash price—nearby futures price (average quoted Friday close Chicago Mercantile Exchange). Live (fed) cattle basis (Tables 19–20) have changed significantly due to increased volatility in cattle and feed prices. Also, wider swings in the strength or weakness of basis have occurred. This makes estimating live or fed cattle basis very important and difficult.
Beef Prices Feeder and fed cattle prices have shown more variability for more months in recent years when compared with historical trends. This increased variability is extremely important to fed cattle marketers due to the cost of feeders and feeds, especially corn and corn byproducts. Omaha cash corn prices mirror the local cash corn markets with a small amount of basis difference, local prices are 2–4¢ less than Omaha.
Comments
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