Feeding and finishing livestock makes producers carry a large amount of price risk. Animal prices account for the largest share of the total input cost, along with feed and market livestock prices.
A new tool from Iowa State University, the ISU Livestock Crush Margin App can help livestock producers evaluate the risks and make more informed decisions.
The crush margin, a term borrowed from the soybean processing industry, describes the margin that can be hedged using futures contract prices for soybeans, soybean meal and soybean oil. A crush margin also can be calculated for cattle and hogs and can be used as a risk management tool. For fed cattle, the margin is live cattle value minus feeder cattle value and estimated corn fed value. For market hogs, the margin is lean hog value minus weaned pig value and estimated corn and soybean meal fed value.
Lee Schulz, ISU Extension and Outreach livestock economist, has been tracking the crush margins for cattle and hogs and posting them online for several years. The margin is calculated every Wednesday using the futures close on that date. The web page will continue and have historical margins in addition to comparing placement month margins. The app will give producers a daily look at price risks.
Producers can select cattle or hogs and pick their placement date for feeder cattle or weaned pigs. The app will use the appropriate futures contract close price from the previous day to calculate the margin without any additional inputs. Historical basis information Schulz has compiled is programmed to be used in the app. Users also can enter their own prices or basis for the inputs if they wish to override the defaults.
“The app is a web-based app and internet access is needed to use the app to access CME futures price," says Russ Euken, ISU Extension and Outreach livestock specialist. "The app will run in a browser on your computer or the app can be saved on a smart phone for access by selecting the icon from the screen.”
“Using futures prices to evaluate and manage the crush margin between revenue and the major input costs, which change with market conditions, is a good price risk management strategy," Schulz said.