Introduction to Cattle Feeding Spreads

Through the use of various combinations of CME Group derivative products, market participants have the ability to simulate the financial aspects of several real world product transformations for the opportunity to hedge price risks or profit from pricing opportunities. The “crush” expression is taken from the soybean processing term for buying soybeans, crushing them and selling the resulting soymeal and soyoil. In the soybean crush transformation, a raw material is broken down into underlying components. The cattle feeding process differs in that it turns inputs into one finished product. Specifically, feedlot operators buy feeder calves and feed to start the process. Then, after a period of time, they sell finished cattle ready for slaughter. A cattle feeding spread models the economics of the operation and provides a way to estimate profitability. This article will discuss the concept and operation of the beef cattle feeding process in the context of what is commonly known as the cattle feeding spread or “cattle crush”.

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