Futures markets are used by cattle producers in three ways.  First, the futures market is an excellent source of price information.  It responds very quickly to information that affects supply and demand in the marketplace and can be used as a rough gauge as to what is going on in these markets.  Second, it provides a mechanism to forward contract feeder cattle and manage downside price risk.3  Third, when combined with an understanding of “basis”, it can be a source of price forecasts.  It is this third use that is the focus of this publication.  The objectives of this publication are:  

1) Show how basis data can be used to move from a futures price to an actual price forecast for feeder cattle in a given location.  The ability to use the futures market to predict local prices for different sized calves will be useful to cow-calf, backgrounding, and stocker operations as they try to anticipate likely sale prices for the cattle they sell.    

2) Show how those expected local prices can be used to estimate breakeven purchase prices for calves.  Breakeven analysis will be useful for backgrounders and stocker operators as they make decisions about placing calves into their programs.  However, it will also be useful for cow-calf operations as they decide whether to sell or retain their calves at weaning. 

Author(s) Contact Information: 

Kenny Burdine | kburdine@uky.edu

Greg Halich | greg.halich@uky.edu