Factors Affecting Live Cattle Basis

Abstract

Abstract Cattle producers and beef packers need to understand basis determinants as they develop price expectations and make pricing, hedging, and forward contracting decisions. This study empirically estimated factors explaining variability in monthly fed cattle basis. The five main results regarding live cattle basis are 1) corn price is an important determinant, 2) a change in the value of the Choice-to-Select spread positively affects basis, 3) changes in the levels of captive supplies have no significant statistical or economic impact on basis, 4) the June 1995 live cattle futures contract did not impact basis, and 5) both market fundamentals and seasonal components are important basis determinants.