BeefBasis.comA Web Based Cattle Basis Analysis & Forecasting Tool

Dr. Kevin Dhuyvetter and Dr. James Mintert Department of Agricultural Economics

Kansas State University

Kole SwanserCustom Ag Solutions

Kansas Livestock Association ConventionNovember 30, 2006

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Basis = Cash price – Futures Price

Cash price = Futures price + Basis

Futures price

+ Expected basis

Expected cash price

Feeder Cattle Basis

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• Basis can vary dramatically between feeder cattle weight classes, market locations, and from year to year

• Effective price risk management requires that you be able to forecast basis

Futures price+ Expected basis Expected cash price

The Problem

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Light Weight Steer Basis Is Extremely Variable

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Heavy Weight Steer Basis Differs Dramatically From Light Weight Basis

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1/31 2/7 2/14 2/21 2/28 3/7 3/14 3/21 3/28

'03-'05 Avg '03-'05 Min'03-'05 Max 2006

March CME Feeder Cattle BasisDodge City 700-800 Lb. Steers

Basi

s ($

's/c

wt.

)

Source: USDA & K-State Research & Extension

Date

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• Research on feeder cattle prices suggests many factors affect cash prices

– Key Variables: sex, weight, lot size, frame size, corn prices, fed cattle prices, market location

• Factors that affect cash feeder cattle prices also impact basis

• Transaction level sales data for multiple years and market locations are required to quantify these variables’ impact on basis

The Solution

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Develop a web-based feeder cattle basis forecasting tool where forecasts are region-specific and account for cattle type and current market conditions

www.BeefBasis.com

The Solution

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Modeling

Model inputs/variables– Lot characteristics (supplied by producer)

• Location• Frame and Class• Expected Weight• Sex• Expected Sale Date• Lot Size• Futures Prices (automated in final version)

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Modeling

Feeder Cattle Futures Basis Models

• Model ABasis = f(lot size, weight, sex, frame, class, contract change, feeder cattle futures, month)

• Model BBasis = f(lot size, weight, sex, frame, class, contract change, live cattle and corn futures, month)

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Provides feeder cattle basis forecasts

• Better than historical averages

• Incorporate current market conditions

• Forecasts for 15 states will be availableAL, AR, FL, IA, KS, KY, MO, MT, NE, ND, OK, SD, TN, TX, WY

Provides Hedge Analysis

Data available for downloading into Excel

BeefBasis.com

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Thank You!

www.BeefBasis.com

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