The cattle crush strategy: trading opportunities for cattle producers The cattle crush strategy: trading opportunities for cattle producers

Nicolás Acevedo Vélez
2007 Ecos de Economía  
This research shows that it is possible for U.S. cattle feeders to obtain additional profits if a consistent technical strategy for trading is applied to the cattle crush spread. However, when trading costs are introduced, the likelihood of obtaining profit from trading the crush reduces considerably. It also shows that the level of gains from the cattle crush is related to the month the cattle are marketed. When the crush is used as a hedging strategy it decreases the profit from the feeding
more » ... from the feeding operation and reduces the volatility of those returns, helping producers to transfer part of the price risk associated with their production. To provide evidence of these findings, this study utilizes daily prices for 1995 to 2006 of the futures contracts of corn, feeder and live cattle to construct the daily cattle crush spread for two different combinations of futures contracts traded in the Chicago Board of Trade and Chicago Mercantile Exchange. These contract combinations suppose that cattle are fed in feedlots for 170 days before being marketed in April and in October. Two different scenarios are also evaluated using the cattle crush spread: one in which the crush is employed as a pre-placement hedging tool and another in which the crush is used as a post-placement hedging method.En este estudio se muestra que es posible para un productor de ganado de carne en EE.UU obtener utilidades adicionales cuando estrategias de operación en el mercado financiero de futuros de Chicago son utilizadas (i.e. la estrategia "cattle crush"). No obstante, los costos de transacción presentes reduce la probabilidad de obtener utilidades mediante la estrategia de análisis técnico. También se muestra que el nivel de ganancia derivado del uso del "cattle crush" está relacionado con el ciclo ganadero en el cual se realice la operación. Cuando el "cattle crush" se utiliza como alternativa para cubrir riesgo, se reduce considerablemente la volatilidad de los retornos de la operación. Este trabajo utiliza precios diarios desde [...]
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