Masters Theses

Date of Award

3-1969

Degree Type

Thesis

Degree Name

Master of Science

Major

Agricultural Economics

Major Professor

James G. Snell

Committee Members

Charles L. Cleland, Irving Dubov

Abstract

The purpose of this study was to determine the applicability of live beef cattle futures to Tennessee feedlot operators. This was done by finding the total cost,and total revenue for both the cash and futures markets. From these data, the net gain or loss was calculated for each market. Then the gains or losses were combined to find the total gain or loss for using the cash market and using the futures market for hedging.

To gather the data for the cash market, secondary data on the price of. choice feeder steers, cost of feeding, medical and marketing expenses, and the selling price of the choice steers were obtained for Tennessee conditions. These data were used to determine the net loss or gain on the cash market.

The data used for the futures market were obtained from secondary data published in the Wall Street Journal over a period of two years. The data obtained were the prices of selling a contract, the brokers fee, and the price of the contracts when bought back. These data were used to determine the total net gain or loss on the futures market.

The period used was October 1965 through February 1967. In this period, the marketing periods were set up so the operator used the October 1965, February 1966, October 1966, and February 1967 futures contracts. These four periods were used because they were either the high point or low point in the marketing of fat cattle in Tennessee.

From the net loss or gain on both markets in a marketing period, the total net loss or gain was calculated for each of the four different marketing periods. These figures indicated the total net gain or loss for operating in the cash market and using the futures market to hedge.

The results using the futures market to hedge the cattle in the feedlot operation were that in the two October marketing periods there was a net gain of $3.20 and in the two February marketing periods a net loss of $1,067.50. This resulted in a net loss of $1,064.30 in using the live beef cattle futures to hedge the feeding operation. Of the two months used in the study as the marketing periods, the marketing months of October had a net gain of $67.50 without using the live beef cattle futures and a net gain of $3.20 using the live beef cattle futures. However, the marketing months of February had a net loss of $665.50 without using the futures and a net loss of $1,067.50 using the futures.

The use of live beef cattle futures as a means to reduce the risks of adverse price fluctuation in the price of cattle in Tennessee and to guarantee a given return was not successful. The feedlot models in the two-year period lost more money using the futures market than if the futures market had not been used.

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