Rabobank Report Studies the Feeder Cattle Basis to Explore Better Ways to Manage Market VolatilityWed, 20 Dec 2017 14:28:18 CST
Is the feeder cattle contract still viable and how can the market volatility be managed? These are the main questions in a new Feeder Cattle Basis report from the RaboResearch Food & Agribusiness group.
The CME Index is comprised of 12 states, and the Rabobank analysts explores the need for regionalization for a more accurate picture of the Feeder Cattle Basis and Market. Analysts have suggested 5 regions: Montana and Wyoming; Nebraska, South Dakota and North Dakota; Iowa and Missouri; Kansas and Colorado; and Texas, Oklahoma and New Mexico.
"The number of feeder transactions by region comprising the CME Index are not distributed equally through all geographies, a key consideration producers should have when establishing a heading program," explains RaboResearch Food & Agribusiness, Senior Animal Protein Analyst Don Close. "The question as to how well a geographic area is represented in the composition of the index is an important consideration to incorporate in hedging strategies."
The market has also seen an increase in volatility since 2014.
"A widely accepted complaint surrounding cattle futures in recent years is that volatility has escalated to the point that risk management has become increasingly unpredictable, more difficult and much more expensive," notes Close.
No matter your circumstance, Rabobank analysts recommend working with a knowledgeable broker because of the uncertainty in the basis and the numerous influences.
Source - Rabobank
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