Live Cattle Basis: Increased Volatility and Risk Management Implications

Basis variability in live cattle markets has substantially grown over the past few years. Since the beginning of the new cattle cycle (2014), volatility1 experienced by the live2 cattle futures market has grown by more than 150% in comparison to previous years. This new scenario has considerable implications for participants in the futures markets, both hedgers and speculators. We review the changing live cattle market conditions from the implementation of the Livestock Marketing Reporting (LMR) up to date. Additionally, we document and interpret changes to live cattle basis while providing examples of how basis volatility impacts profitability