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Price Discovery For Stocker Cattle Futures And Options

Author

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  • Diersen, Matthew A.
  • Klein, Nicole L.

Abstract

Low trading volume in the CME stocker cattle contracts has made hedgers and speculators reluctant to use the contracts. Traders need decision tools to discover prices or to evaluate quoted prices that may not contain all the information in the market. The number of head of stocker weight cattle sold on the spot market has increased in recent years while the practice of cross-hedging stocker weight cattle against the feeder cattle contract remains risky. A model explains the spread between feeder cattle and stocker cattle futures prices as a function of feed prices, live cattle prices, and seasonal factors. The volatility of spot stocker cattle prices is comparable to spot feeder cattle prices, supporting the idea of using feeder cattle implied volatility measures as estimates of stocker cattle futures implied volatility in option pricing models. The model and relations proposed should be useful for traders evaluating observed prices or placing limit orders for stocker futures and options.

Suggested Citation

  • Diersen, Matthew A. & Klein, Nicole L., 2000. "Price Discovery For Stocker Cattle Futures And Options," 2000 Conference, April 17-18 2000, Chicago, Illinois 18940, NCR-134 Conference on Applied Commodity Price Analysis, Forecasting, and Market Risk Management.
    • Handle: RePEc:ags:ncrtci:18940
    DOI: 10.22004/ag.econ.18940
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    References listed on IDEAS

    as
    1. Elam, Emmett & Davis, James, 1990. "Hedging Risk For Feeder Cattle With A Traditional Hedge Compared To A Ratio Hedge," Journal of Agricultural and Applied Economics, Cambridge University Press, vol. 22(2), pages 209-216, December.
    2. Elam, Emmett W. & Davis, James, 1990. "Hedging Risk For Feeder Cattle With A Traditional Hedge Compared To A Ratio Hedge," Southern Journal of Agricultural Economics, Southern Agricultural Economics Association, vol. 22(2), pages 1-8, December.
    3. Dhuyvetter, Kevin C. & Schroeder, Ted C., 1999. "Determinants Of Feeder Cattle Price-Weight Slides," 1999 Annual Meeting, July 11-14, 1999, Fargo, ND 35679, Western Agricultural Economics Association.
    Full references (including those not matched with items on IDEAS)

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