|
Ridgway, IL | I hedge practically everything I precondition.
I don’t like lrp, because you’re stuck with it for the duration once you buy it. If you buy a put, then get the cattle sold on a cash contract halfway through the feeding period, you can sell the put and get some value back out of it, while with lrp you’re just married to it. When a good margin on a backgrounding project might be 75$, it’s hard to spend that much on risk management. There just isn’t enough margin to allow you to manage risk that way. You’re best off to find a feedlot that will buy them on a forward contract. But put yourself in their shoes, look at fall fat cattle prices and back into what your heifers will be worth in spring
I would agree with others sentiments, It will be difficult to flip a 530lb x 1.60 heifer. There isn’t a lot of value left in that calf, plus you will be selling a yearling in the worst part of the year. That animal will die in September which is seasonally the low mark for fat cattle prices. You will fight that, while you’re trying to market those heifers
I would guess north Iowa yearling steer basis to typically be -3 to -4, compared to -6 to -7 here. A heifer is gonna be worth at least 5-6 behind the steers, and likely a bigger discount. Feeder cattle basis can be extremely volatile depending on forward crush margins and overall flat price. When futures trade in the 130s and low 140s, basis can be 5+ c better than when futures trading in the 150s.
I find that when you’re backgrounding cattle, because you’re typically only putting around 300 lbs on them, cost of gain is always high compared to a finishing operation. You have to spread fixed costs, like vaccines, risk management, and death loss over very few lbs added. That means to me that One of the most important skills becomes buying yourself into a good position by the animal you choose. It’s hard to make money backgrounding a load of one mans heifers that have already had some shots and are pretty etc. small details make a huge difference.
Sell a more favorable weigh up than you buy
Buy small lots sell load lots
Buy for condition
Use seasonal trends — for example, it’s time to start looking for cattle that can be sold in March as grazing cattle. Time to start buying lighter weights.
Buy bulls sell steers
Buy cattle with no health history, sell cattle with a premium health pkg
The best heifer backgrounders I know that are successful, buy 1.5s and 2s, and sell them west to commercial feedyards where the color of them is less important. They buy them light and cheap, as singles and small pkgs. they’re 100% hedged all the time. If you don’t buy them right, any risk management you look at will look like you’re hedging a loss.
Edited by LKM 12/14/2018 06:37
| |
|
Hedges/puts on feeder cattle?
