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About Using the Forecasting Tools

This page contains the following helpful information for users of the BeefBasis forecasting tools,

  • A brief descriptions of key features,
  • Information about inputs and examples for choosing and entering values,
  • An explanation of outputs

Features

The BeefBasis forecasting tools are organized on two pages: Feeder Cattle Basis Forecasting and Hedge Analysis. Users can move back and forth between these pages by selecting the appropriate link from the green menu bar above the input screen.

Feeder Cattle Basis Forecasting

This page generates a customized estimate of feeder cattle basis and cash selling price at an expected future sale date. Forecasts are based on 1) user-provided information about intended lot characteristics (such as sex, weight, frame, class, etc.), and 2) current prices for deferred futures contracts. This tool is designed to provide relevant market price information, forecasts, and analysis that will be useful to cattle producers when considering alternative marketing or price risk management strategies. For example, these may include estimating expected sale or purchase prices at the conclusion of a futures or options hedge, evaluating a current cash market quote, or evaluating forecasted cash prices.

Hedge Analysis

This page extends the feeder cattle basis forecasting model by applying the results to a price risk management scenario. Based on feeder cattle basis and selling price forecasts, the user can analyze the expected cash prices realized by a cattle seller with a hedge position in the feeder or live cattle markets under a range of hypothetical market conditions. This tool is intended to help users, 1) understand how hedging (or cross-hedging) can be used to manage price risk, and 2) analyze how sensitivity to market conditions changes depending on the relationship between number of cattle sold and the size of hedge position.

Input Descriptions

The BeefBasis forecasting tool uses information supplied by the user to generate result output that is customized to a specific location, marketing date, and type of cattle. Please read the following input descriptions to better understand how to use the tool to produce results that are most relevant to your situation.

Weight

Enter the expected average weight per head of the cattle in this lot at the time they are expected to be sold. For example, if you expect your calves to weigh 600 pounds at the expected sale date, enter 600 in this field.

Head

Enter the size of the lot (number of head of cattle) that you intend to market together. Research has confirmed that lot size will tend to influence selling price per pound.

Location

Select an AMS reporting location that best represents your local market. For example, you may select the local auction where you plan to sell your cattle if it is included in the tool. If you are not planning to market your cattle through one of these locations, pick the location with which you are most familiar or that best represents your market outlet based on location or type of cattle sold.

Expected Sale Date

Enter the date when you expect to sell the cattle. This will be the date for which the basis and selling price estimates are made. Select the date by scrolling through months using the arrow buttons on the calendar tool. Then click the desired day on the calendar month.

Frame

Enter the expected USDA frame category that is most appropriate for the cattle you intend to market. Most producers who don't know the frame type of cattle they expect to market will do well to use the most commonly marketed frame of cattle sold for their weight range at their selected location. In many cases this will be the combined "Medium Large" frame type. For more information on grading, please refer to these USDA documents : USDAGrading1, USDAGrading2.

Class

Enter the expected USDA class designation that is appropriate for the cattle you intend to market. Most producers who don't know the class of cattle they expect to market will do well to use the most commonly marketed class of cattle sold for their weight range at their selected location. In many cases this will be "Class 1." For more information on grading, please refer to these USDA documents : USDAGrading1, USDAGrading2.

Sex

Enter the sex of the cattle that you are expecting to sell. For most states, you must select either "Steers" or "Heifers." "Bulls" may be selected in some states where this marketing practice is more common.

Price Inputs

The forecasting tools use current prices for selected futures contracts as explained below.

Feeder Cattle Futures Price

Enter the current futures price ($/cwt) for the Feeder Cattle contract that will be nearby at the expected sale date. For example, if you intend to market 750 lb. steer calves on December 5, you would input the current price for the January feeder cattle contract at the time you are making the forecast.

Corn Futures Price

Enter the current futures price ($/bu) for the Feeder Cattle contract that will be nearby at the expected sale date. For example, if you intend to market 750 lb. steer calves on December 5, you would want to use the current price for the December corn contract at the time you are making the forecast (e.g., $3.50).

Note: "Nearby contract" refers to the futures contract that will be next to expire on a particular date. For example, if it is November 30, 2006, the next feeder cattle contract expires on January 26, 2007. Therefore, January would be the nearby feeder cattle contract.

Model Output

Hedge Ratio

For more on hedge ratios, BeefBasis.com refers you to an excellent paper from Kansas State University, "Cross Hedging Agriculuture Commodities". For more information on hedging, BeefBasis.com refers you to Kansas State's AgManager.