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AgridianDairy KB

Feeder and fed cattle mark-to-market

Definition

Section titled “Definition”

Mark-to-market (MTM) values cattle on feed at what they are expected to bring when they finish, discounted for the feed and yardage still to be spent getting them there. It is done per lot (a group placed together with a common in-weight, sex and ownership), not per animal.

The steps:

  1. Project the finish: days to finish from the weight still to gain and the lot’s average daily gain (ADG); the finish month is the as-of date plus that many days.
  2. Price at finish: the futures price for the contract covering the finish month, plus the basis expected for that month, sex and location (see futures and basis).
  3. Value per head: price times out-weight, less the remaining gain times the cost of gain.
  4. Lot value: value per head × head × the share of the lot the borrower owns.

Fed cattle (finishing for slaughter) are normally priced off CME Live Cattle (LE). Feeder cattle (placed for growing, or sold to a feedlot) are priced off CME Feeder Cattle (GF). Steer and heifer basis differ and are kept in separate tables, usually in $/cwt. Dairy-beef crosses and straight dairy steers trade at their own discounts to beef-breed cattle.

Formula

Section titled “Formula”

Plain text:

days to finish   = (target out-weight − current weight) / ADG
finish month     = as-of date + days to finish
price ($/cwt)    = futures (contract for finish month) + basis (month, sex) + adjustments
value per head   = price × out-weight / 100 − (out-weight − current weight) × cost of gain
lot value        = value per head × head × % owned

LaTeX:

t_f = \frac{W_{\text{out}} - W_{\text{now}}}{\mathrm{ADG}}
V_{\text{hd}} = \left(F_{m} + b_{m,s} + a\right)\frac{W_{\text{out}}}{100} - \left(W_{\text{out}} - W_{\text{now}}\right) c_g
V_{\text{lot}} = V_{\text{hd}} \times N \times p_{\text{owned}}

F is the futures price for the finish month m, b the basis for month m and sex s, a any quality adjustment (all $/cwt), and c the cost of gain in $/lb.

How to pull it in DC305

Section titled “How to pull it in DC305”

DC305 is usually not the source for feedlot lots. Lot head, in-weight, placement date, ADG and cost of gain come from the feedlot’s close-out or lot statements, or from feedyard management software.

DC305 is the source when dairy-origin calves or steers are tracked in the herd file before they leave for a feeder or grower:

COUNT FOR RC=8                              bull calves still in the herd (RC 8 = bull calf)
COUNT FOR LACT=0 SEX=M                      the same, where the herd keeps a sex item
EVENTS\D SOLD FOR <period date range>       calves sold to a grower in the period

EVENTS lists live animals only by default, so sold calves need \D (animals that have left the herd) or \B.

Typical range

Section titled “Typical range”

Herd context: US fed and feeder cattle, including dairy and beef-on-dairy steers; values move with the futures market.

  • Fed-cattle out-weight: about 1,300–1,500 lb live for beef steers; Holstein steers often heavier and on feed longer.
  • ADG on finishing rations: about 3.0–4.0 lb/day for beef steers; lower for Holsteins.
  • Basis: commonly within about ±$10/cwt of futures, varying by region, season, sex and breed type; heifers usually trade below steers.

Common mistakes

Section titled “Common mistakes”
  • Pricing everything off the nearby contract. Use the contract for each lot’s finish month.
  • Using cash price for the futures leg, or futures for the cash leg. Cash = futures + basis.
  • Ignoring remaining cost of gain, which overstates value for lots far from finish.
  • Using steer basis for heifers, or beef-breed basis for dairy or dairy-cross cattle.
  • Forgetting partial ownership on lots shared with a feeder or partner.
  • Static ADG for lots that have shown slower gain in their own close-outs.
  • Counting a lot as hedged without matching it to specific futures, LRP or forward contracts (see hedge coverage).
Section titled “Related”