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March 1, 2006
Dairy
dramatic
impact on milk production and cow health.
Over time … try to minimize facility cost and
negative impacts to … environment;
while maximizing milk production per cow,
reproductive efficiency …
June 28, 2018
Hedging & Options
USDA AMS data on regional live cattle production, marketing, and price discovery; CFTC
data on commitment of traders; and CME Group data on contract deliveries
3 …
ROLE OF LIVE CATTLE FUTURES
This segment of this report summarizes the importance of live cattle futures and composition of
traders comprising the contract. This information is central to the major objectives of this
project as it documents the growth in the live cattle futures contract; it’s importance to short
hedgers mitigating price risk; and the relatively small number of natural long hedgers present in
the market. We rely on this information in later sections of this report where we synthesize key
takeaways.
Purpose and Importance
Futures markets serve major roles of risk transfer, price discovery, and price forecasting. The
CME Live Cattle Futures contract has been actively traded since 1964. Today, live cattle futures
daily volume typically exceeds 50,000 contracts traded.
Risk Transfer
The most important role of a futures market is providing a tool for risk management. Without
hedgers, a commodity futures market will not survive. As a risk management tool, futures
provide a market where price risk can be largely alleviated for a hedger by taking a futures
position that is opposite the hedger’s existing or expected cash market position. Cattle feeders
sell live cattle futures to lock in a margin for cattle as feeder cattle are placed in the feedyard or
during the feeding period. Once the cattle are ready for harvest, the cattle feeder hedger who is
short the futures contract can sell the cattle to a beef packer and buy back the futures position.
Assuming the cattle meet contract specifications, the feeder can alternatively opt to deliver the
cattle to fulfill the short futures position obligation. Through these transactions, the short cattle
hedger has effectively established a future selling price for cattle well in advance of harvest,
thereby mitigating price risk. The hedger’s remaining fed cattle price risk is basis risk.
Establishing a future selling price upon placement of feeder cattle means that feeders also give
up positive risk, should prices increase. Many feeders who are less risk averse may place feeder
calves and wait to see how market conditions evolve before taking a position in the futures
market. In any case, the option to deliver cattle to fulfill futures positions give short hedgers a
mechanism by which to make convergence more predictable and reduce basis risk. More
discussion related to basis is included later in the discussion of delivery of live cattle to fulfill
short futures position.
The CME Live Cattle Futures Contract can be used in an equivalent way by long hedgers who
buy live cattle (or beef as a cross‐hedge) as inputs to their business. In this case, the buyer of
live cattle would establish a long position in the futures market at some point before the cattle
are needed. This allows the long hedger to lock in an expected price that would lead to
profitable sale of the final product. At the time the long hedger buys cash cattle the futures
position is offset by selling futures. In the case of the long, delivery is more nuanced. The long
cannot initiate delivery. However, if willing to accept delivery, the long can influence
convergence maintaining a long position as contract expiration nears.
5 | P …
Summary Book - All Counties
May 1, 2016
Dear Farm Managers and Friends,
The 2015 Profit‐link Summary and Analysis information was processed from the farm records of participating Kansas
Farm Management Association members from 17 counties of Northwest Kansas. The location of the participating members is
shown in the map on page 3. One hundred fifty‐three (153) farms were summarized and represent 61% of the Farm
Management Association, NW 2015 membership. The Association Economists and staff of the KFMA, NW wish to say “thank
you” to these families for their efforts in keeping records complete enough for analysis and for sharing their data to be utilized
in this summary. Additional appreciation is extended to the Association support staff and the individuals at the KMAR‐105
Association for their part in this analysis work.
After a good 2014 year with net farm income of $108,532, 2015 took a downhill slide to a net farm income of
$(2,971). After 66 analysis years, this is only the fifth year in the history of KFMA, NW to post a negative net farm income
following 1953, 1956, 1981, and 2002. Although the average net farm income was a small negative, there is a variation of
income across farms. On page 6 you can see a comparison of farms by net income quartile groups. The bottom 25% (39
farms) averaged $‐202,117 of net farm income, while the top 25% (38 farms) averaged $183,650 of net farm income. The
driving force behind the decrease in 2015 average net farm income was a decrease of 21% in value of farm production from
an average of $917 …
Summary Book - All Counties
41
Detailed Cost Summary by Region and by … 80
Livestock Enterprise Summary … 101
2017 Livestock Enterprise Written Summary …
Summary Book - All Counties
The 2014 Profit‐link Summary and Analysis information was processed from the farm records of participating Kansas
Farm Management Association members from 17 counties of Northwest Kansas. The location of the participating members is
shown in the map on page 3. One hundred twenty‐three farms were summarized and represent 49% of the Farm Management
Association, NW 2014 membership. The Association Economists and staff of the KFMA, NW wish to say “thank you” to these
families for their efforts in keeping records complete enough for analysis and for sharing their data to be utilized in this
summary. Additional appreciation is extended to the Association support staff and the individuals at the KMAR‐105 Association
for their part in this analysis work.
After the lower net farm income of $35,791 recorded in 2013, net farm income for 2014 did improve even with the
continued drought. For the 123 farms in the summary, net farm income averaged $108,532. On page 6 you can see a
comparison of farms by net income quartile groups. The bottom 25% (30 farms) averaged $‐158,517 of net farm income, while
the top 25% (31 farms) averaged $431,829 of net farm income. The driving force behind the increase in 2014 average net farm
income was an increase of 10.1% in value of farm production from an average of $833 …