Transcription of THE CATTLE CRUSH AND REVERSE CRUSH - …
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THE CATTLE CRUSH AND REVERSE CRUSH - …
1 | THE CATTLE CRUSH AND REVERSE CRUSHWHAT IS THE CATTLE CRUSH ?The CATTLE CRUSH trade seeks to replicate the gross margin of a typical feedlot operation by calculating the spread between input costs and the output sale price. For a typical feedlot, the two primary inputs are feeder CATTLE and corn while the output is live CATTLE , which are sent to market once the feeding process ends. The long CRUSH trade combines taking a long position in feeder CATTLE and corn with corresponding short positions in live CATTLE . The approximate ratio of corn, feeder CATTLE and live CATTLE therefore is as follows: 2 corn and 3 feeder CATTLE to 6 live CATTLE . Calculating the number of contracts to purchase in order to even all legs of the trade requires making some assumptions and it is not perfect. After all, we are talking about live animals that differ in terms of weight and speed at which they reach market weights. The CATTLE CRUSH (and REVERSE CATTLE CRUSH ), or the CATTLE feeding spread, is a trade that is more familiar to feedlot risk managers than financial investors.
5 | THE CATTLE CRUSH AND REVERSE CRUSH. SEASONALITY. Recognizing the seasonality of the cattle crush would allow financial investors to focus on …
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