Document Type

Other

Publication Date

7-1-2008

Keywords

south dakota, cattle fedd basis, management planning purposes

Extension Number

ExEx 5074

Department

Economics

Description

Producers, brokers, and buyers routinely assess the value of cattle by monitoring cash and futures prices. Basis is the difference between a cash price and a futures price. Basis generally reflects the difference in local supply and demand conditions and quality differences. For a location like Sioux Falls, South Dakota, which is neither a delivery location for live cattle futures contracts nor a slaughter lo¬cation, basis also reflects transportation cost to a par deliv¬ery location. Basis expectations for future dates are usually formed from historic basis levels. Accordingly, actual basis may differ from expectations in a given month because of unexpected changes in any of those factors. The purpose of this paper is to define and discuss fed cattle basis for South Dakota. Knowing recent basis levels gives insights into any shifts or breaks from trend levels. Expected basis levels are provided to use for planning purposes. Specifically, expected basis can used to evaluate profitability by converting a futures price to a local cash price, to determine an expected hedge price, and to relate a forward price quote to a futures quote.

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