Managing Volatility in Cattle07 October 2013
US – Lower corn prices and low cattle supply is moving calf and feeder prices higher, but uncertainty still reigns over some cattle men into the winter.
This is the message of Livestock Economists in the US who have been telling farmers about the futures markets and outlook for backgrounders.
Professor Matthew Diersen, of South Dakota State University has explained that volatility comes in different forms and that specific volatility is much lower.
“Certainly prices in recent weeks have changed because of changing corn prices and other factors,” said Mr Diersen.
“However, most producers in the area have not been selling cattle yet and would not have been affected by that type of volatility. I happen to follow another, specific volatility, the implied volatility from cattle futures and options markets. That volatility is low, very low.”
Implied volatility is the best tool the cattle industry has at estimating how much a price will fluctuate up to when the contract terminates, added Professor Diersen.
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