The workings of the market.
Sometimes I am amazed at how coordinated the markets are. In this case I am talking about the live-cattle, feeder-cattle and corn markets. On a fairly regular basis I calculate feedlot breakevens for different weights of feeder cattle to be fed to finish. On a weekly basis I observe feeder-cattle prices at various auctions and I track Omaha corn prices as an indication of what is happening with feedlot cost of gain.
I have some fixed assumptions about average daily gain and feed efficiency. I know these vary throughout the year and with different types of cattle, but still holding those constant gives a fairly good idea of potential returns to cattle feeding. I use live-cattle futures prices to project expected returns to feeding and I determine the breakeven selling price for fat cattle based on the average price paid for feeders at auctions and based on expected total cost of gain in the feedlot.
However, I often use this information as well when I am looking at feeder-cattle prices and trying to decide if I think they might be moving higher or lower over the next few weeks or months. As we are moving into fall, when we will sell a large number of feeder cattle, I was trying to determine how optimistic or pessimistic I should be about fall calf prices.
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