Hedging Feedlot Cattle: A Canadian Perspective

Abstract

Abstract Empirical testing of alternative hedging strategies raises doubts about the usefulness of U.S. live cattle futures markets for cattle fed in Canada. Actual data from almost 100,000 head of custom fed cattle over a nine‐year period were analyzed to test profitability and risk reduction associated with fourteen specific hedging routines. Full cost and revenue data from cattle custom fed in the three prairie provinces were used in this paper. The strategies tested were typical of those a custom feeder could use to attempt to reduce output price risk. The results indicate that hedging cattle in Canada is more complex than previous literature suggests.