Weekly Feeder Cattle Risk Management Analysis

February 23, 2011 08:04 AM
 

 chart02182011

Weekly USDA feeder cattle prices for TX and OK were used to calculate projected breakevens on cattle bought last week - week ending February 18, 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. 

Improving weather conditions allowed sizable feeder cattle movement to resume. Orders for spring grass are providing buying pressure to the market, and as such, feeder cattle sales reported higher price activity compared to weeks past.  However, corn price continues to strengthen and despite Tuesday’s limit down day, that market continues to show strength as it closes higher on a weekly basis.  At the end of the day the cattle feeder continues to be plagued with the inability to hedge in a breakeven on most sets of cattle as the input cost more than offset any gains made in the live cattle market.    
 
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.

2chart02182011

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