Impacts of Changes in Market Fundamentals and Price Momentum on Hedging Live Cattle

Abstract

Basis prediction errors for live cattle in the five major Mandatory Livestock Price Reporting areas are analyzed to determine how shifts in the live cattle market fundamentals and contemporaneous market conditions, including price momentum, impact ability to hedge. Results reveal that thinness of the negotiated cash market, weight of cattle marketed, and contemporaneous factors statistically impact basis prediction errors. Impacts vary across region. Volatility in cost of gain and delivery costs have greater effects on basis prediction error than do market trends.

Keywords

• basis
• cme live cattle contract
• risk management