BeefBasis'com A Web Based Cattle Basis Analysis

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BeefBasis.comA Web Based Cattle Basis Analysis
Forecasting Tool

• Dr. Kevin Dhuyvetter and Dr. James Mintert
• Department of Agricultural Economics
• Kansas State University
• Kole Swanser
• Custom Ag Solutions
• Kansas Livestock Association Convention
• November 30, 2006

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Feeder Cattle Basis

• Basis Cash price Futures Price
• Cash price Futures price Basis
• Futures price
• Expected basis
• Expected cash price

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The Problem

• 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

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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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The Solution

• 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

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The Solution

• 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

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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 A
• Basis f(lot size, weight, sex, frame, class,
  contract change, feeder cattle futures, month)
• Model B
• Basis f(lot size, weight, sex, frame, class,
  contract change, live cattle and corn futures,
  month)

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BeefBasis.com

• Provides feeder cattle basis forecasts
• Better than historical averages
• Incorporate current market conditions
• Forecasts for 15 states will be available
• AL, AR, FL, IA, KS, KY, MO, MT, NE, ND, OK, SD,
  TN, TX, WY
• Provides Hedge Analysis
• Data available for downloading into Excel

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Thank You!www.BeefBasis.comwww.AgManager.info
for K-State Ag Economics info