Feeder Cattle futures (GF) are young cattle that have grazed on pasture and are between 700 and 899 pounds in weight. These cattle will be placed in a feedlot and fed a specialized grain-based diet for four to six months, or until they reach their maximum frame and weight potential.
What factors influence feeder cattle prices?
Feeder cattle prices are determined by the weight of the cattle, with lighter cattle commanding the highest price per pound (or hundredweight) and heavier cattle commanding lower prices. Not only do prices differ depending on the weight of the cattle, but the size of the price adjustment also varies.
What is the foundation for feeding cattle?
Georgia’s livestock base is determined by three elements in general:
Time, place, and quality are all factors to consider. The basis’s temporal dimension
is normally limited to the amount of time the livestock are expected to be in the field.
should be delivered on the local cash market as well as surrounding futures markets
contract. As the expiration of a neighboring futures contract approaches,
The cash and futures prices in your area should converge.
They barely differ by a little bit As a result, as the feeder
As a futures contract nears its end, the basis difference widens.
only reflects changes in location and/or quality Because cattle cannot be stored, basis discrepancies in months other than the closest month will also reflect the projected direction of price swings.
What is the average weight of a feeder calf?
Yearlings weighing up to 800 to 900 pounds. Packers like animals weighing between 1,100 and 1,200 pounds, thus the most typical weight of calves kept on feed is between 500 and 700 pounds.
How do you figure out the price of cattle?
For example, say 300- to 500-pound steers cost $95 to $118 on average. The fee is for a hundred pounds. In other words, you might get up to $118.00 for every 100 pounds the steer weighs. A 350-pound cow, for example, would fetch $413.00 (3.5 X $118).
Why are the prices of Feeder Cattle falling?
Between March and July, the feeder cattle market saw a large level of price volatility. Retail meat demand has been historically strong, and meat exports to China have pushed prices up. While there have been some favorable price moves for feeder cattle, the most of the downward price pressure has been due to fodder production uncertainties and rising grain costs. Drought conditions in the Western United States have forced feeder cattle and cull cows to come to market earlier, and increased grain prices have prompted a run-up in grain prices due to poor stocks-to-use ratios and declining global maize production, diminishing a feedlot’s demand for feeder cattle. Feeder cattle prices can be lowered by increasing the supply of feeder cattle from producers and decreasing the demand for feeder cattle from feedlots.
How are futures prices calculated?
The futures pricing formula deserved its own discussion for a reason. Various types of traders can be found in the futures trading spectrum: some are intuitive traders who make judgments based on gut instincts, while others are technical traders who follow the pricing formula. True, successful futures trading necessitates skills, knowledge, and experience, but before you get started, you’ll need a good grasp of the pricing formula to figure out how to navigate the waters.
So, where does the price of futures come from? The cost of the underlying asset determines the futures price, which moves in lockstep with it. Futures prices will rise if the price of the underlying increases, and will fall if the price of the underlying falls. However, the value of the underlying asset is not necessarily equal. They can be traded on the market for a variety of prices. The spot price of an asset, for example, may differ from its future price. Spot-Future parity is the name given to this price gap. So, what is it that causes the prices to fluctuate over time? Interest rates, dividends, and the amount of time until they expire are all factors to consider. These elements are factored into the futures pricing algorithm. It’s a mathematical description of how the price of futures changes as one or more market variables change.
In an ideal scenario, a risk-free rate is what you can earn throughout the year. A risk-free rate is exemplified by a Treasury note. For a period of two or three months until the futures expire, it can be adjusted accordingly. As a result of the change, the formula now reads:
Let’s have a look at an example. We’ll use the following values as a starting point for our calculations.
We’re presuming the corporation isn’t paying a dividend on it, so we’ve set the value to zero. However, if a dividend is paid, it will be taken into account in the formula.
The ‘fair value’ of a futures contract is calculated using this formula. Taxes, transaction fees, margin, and other factors contribute to the gap between fair value and market price. You may compute a fair value for any expiration days using this formula.
What is the formula for calculating cattle basis?
The gap between the local cash market and the price of a futures contract (Basis = Cash Price Futures Price) is known as basis. When assessing projected sale or purchase prices at the end of a futures or options hedge, evaluating a current cash market quote, and anticipating cash prices, historical basis trends might be useful. This book explains how cattle basis is calculated, outlines a method for compiling a local basis history, and examines how historical basis data can be utilized to forecast basis.
What is the price of a cattle futures contract?
Contract parameters for live cattle futures $10.00 per contract, $0.025/cwt (0.025 cents per pound). Monday, 9:30 a.m. U.S. ET to 2:05 p.m. U.S. ET, live cattle futures trade electronically on the Globex trading platform.