In the winter of 2017 I wrote a series of articles about price risk management for feeder cattle. I discussed hedging feeder cattle on the CME feeder cattle futures and also conducted a risk analysis on the basis for feeder cattle prices in Manitoba.
Producers used this information to calculate an expected forward price and implement an optimal risk-management program involving the Livestock Price Insurance program or using futures and options themselves. Given the favourable response, I will get into more details, but first a quick review.
The feeder cattle futures market (which trades on the CME Globex electronic platform) is the price discovery mechanism for North American feeder cattle. The contract is 50,000 pounds and is based on the CME feeder cattle index.
Without going into detail, this feeder cattle price index is based upon a sample of transactions in the 12 major feeder cattle-producing states for 700- to 899-pound medium- and larger-frame feeder steers. The CME publishes a composite price, which is the official cash settlement price for the CME feeder cattle futures at contract final settlement. Figures have been calculated by the CME Group from prices reported by…