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Weekly Feeder Cattle Risk Management Analysis

March 1, 2011
By: Justin Gleghorn, Brock Thompson Trading, Amarillo, TX


Weekly USDA feeder cattle prices for TX and OK were used to calculate projected breakevens on cattle bought last week, week ending February 25, 2011. Breakevens were calculated for each weight group within sex (steer and heifer). Ration price, $/ton dmb, was estimated at $320. Other variables including interest, yardage and % feed financed were estimated to be 6%, $0.05/d and 100%; respectively. As it is known that actual input estimates will vary greatly by region and by yard within region, our goal was to illustrate pricing differentials between weight classes and sexes of cattle. 
Feeder cattle movement was strong for the week ending February 25, 2011. Supported by higher live cattle cash trade from the previous week(+ $3.00/cwt) feeder cattle sold $2.00/cwt higher for the week. Although live cattle sales were strong, the board ended the week lower; except the front month of February. Disappointing live cattle futures along with a volatile week in the corn market, which had a $0.76/bu trading range, did not improve projected breakevens noticeably. Projections show the cattle feeder is only able to lock in negative margins of approximately -$6.00/cwt for steers and -$4.50/cwt for heifers. 
Below is an analysis of heifer value relative to steers. The question addressed: Is the cash discount applied to heifer feeder cattle to wide or narrow? As can be seen, with performance accounted for, the discount applied to heifers is often larger than what should be applied in the cash market.

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