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~SH~
Rancher
Joined: 14 Feb 2005
Posts: 5426
Location: South Western SD
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 Posted: Sun Aug 01, 2010 8:54 am Post subject: |
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Not wrong!
I am talking about how producers, feeders, and packers use the board to manage their risk. When the board is used for "risk management" and not "speculation", long positions are used to lock in profits at the other end. Short positions are far more speculative from the standpoint of taking risk management positions.
Done correctly, cattle that are purchased are locked in as they are purchased.
~SH~
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Sandhusker
Rancher
Joined: 10 Feb 2005
Posts: 18081
Location: Nebraska
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| Posted: Sun Aug 01, 2010 7:23 pm Post subject: |
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So.... You're telling us that;
Feeders held most of the short positions.
Short positions are mostly for speculating and longs for locking in profit.
Done correctly, bought cattle are locked in for profit.
Connecting the dots, that would mean that the feeders are net speculating instead of locking in profits and that they're doing the exact opposite of how you say things should be "done correctly".
Lets try a real life scenario; Mr. Feeder buys a couple loads of calves. He figures they will be done in Oct. and that he will have $98 into them. The Oct contract is $100 at the time of purchase. Wishing to lock in his profits, he follows your advice and goes long Oct. @ 100.
When sale day comes in October and the cattle are ready to go and the contract is expiring, the spot price is $92. How much did Mr. Feeder make?
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~SH~
Rancher
Joined: 14 Feb 2005
Posts: 5426
Location: South Western SD
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| Posted: Mon Aug 02, 2010 8:12 am Post subject: |
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First I said "the feeders held more short positions than the packers" during the GIPSA investigation into CME trading. That is not to say the feeders held more short positions than long positions. Are we clear?
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| Sand: "When sale day comes in October and the cattle are ready to go and the contract is expiring, the spot price is $92. How much did Mr. Feeder make?" |
Not enough information.
What did he pay for the feeders?
What was the cost of gain on a dry matter basis from pay weight to pay weight?
What did the cattle gain pay weight to pay weight?
What did the contracts cost?
How many contracts did he buy?
Who paid for trucking from the feedlot to the packing plant?
What was the death loss?
Premium for source verification?
Like I said, you obviously have not fed cattle.
~SH~
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Sandhusker
Rancher
Joined: 10 Feb 2005
Posts: 18081
Location: Nebraska
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~SH~
Rancher
Joined: 14 Feb 2005
Posts: 5426
Location: South Western SD
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| Posted: Sun Aug 08, 2010 8:19 pm Post subject: |
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| Sand: "Trying to baffle with BS?" |
Every question I asked is a legitimate question regarding the costs of feeding cattle. Anyone that has fed cattle could provide realistic numbers. You diverted the questions because you don't know how to answer them because you've obviously never fed cattle.
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| Sand: "I said he had $98 into them." |
$98 INTO WHAT??? The purchase price per cwt? The cost of feeding them? The purchase cost and the feeding cost per cwt?
You don't have a clue what you are even talking about do you?
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| Sand: "Ah, heck, let's just make this quick. The feeder LOST money on both the cattle and the contract. That is because you don't go long to lock in profits when you're selling, you go SHORT. That way, if the markets go to hell on you, you make your money on the contract and not the commodity." |
How could the feeder lose money on the contract if he locked his profit in on the board by going long? I am going to assume, which is a dangerous thing with you, that by saying "he had $98 into them" it would include the purchase cost and the cost of feeding them and together he has $98 per cwt into them. If he locked them on the board for $100 per cwt, and they weighed 1200, he would have made $24 per head minus the basis. Doesn't matter what the cash ("spot") price is, because the board will pay him the difference minus the basis.
You're in over your head again so throw some other meaningless bs out there to try to sound like you know what you're talking about.
~SH~
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Sandhusker
Rancher
Joined: 10 Feb 2005
Posts: 18081
Location: Nebraska
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| Posted: Tue Aug 10, 2010 6:33 pm Post subject: |
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I"ll type slow so that maybe you can get it.... YOU CAN'T LOCK IN PROFITS BY GOING LONG IF YOU'RE THE SELLER! You're just doubling down and exposing yourself to more risk.
Give it up, Scotty. You're just digging a deeper hole.
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~SH~
Rancher
Joined: 14 Feb 2005
Posts: 5426
Location: South Western SD
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| Posted: Wed Aug 11, 2010 7:53 am Post subject: |
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| Sand: "I"ll type slow so that maybe you can get it.... YOU CAN'T LOCK IN PROFITS BY GOING LONG IF YOU'RE THE SELLER! You're just doubling down and exposing yourself to more risk." |
You gotta be kidding me?
Enter the debate Sandhusker. Lets use some real numbers and you can show everyone reading this where I am wrong.
Today, lets say I have 125 black steers weighing 850 lb. I have been offered $110 for them for delivery on Aug. 15th. The December board for Live cattle closed at $96.26. I have to decide whether I would be better off to sell them or whether I would be better off to feed them.
Lets say that i have fed my own yearlings before. I know they can gain 5 lb. per day in an average year and have to be on feed for 100 days to finish.
Lets also say that I can lock in my cost of gain (including interest) for $.63 per pound.
100 days on feed x 5 lb. gain = 500 lb. of gain
850 lb. initial weight + 500 lb. = 1350 finished weight
500 lb. x $.63 cost of gain = $315 feeding costs (including interest)
1350 finished weight x $96.25 = $1299. finished price
Trucking costs are the same whether I feed them or sell them.
$1299 finished price - $935 initial value of 850 lb. steer - $315 feeding costs = $50 per head profit.
If I lock these cattle in on the board for $96.25, my only risk is basis, death loss, and weather. Historically the basis has only been $1.00 so I am only risking $14 per head on basis. Death loss has historically been 1% at the most which would be $10 per head. These cattle will be finished before any bad weather can be expected.
So even with $25 per head of risk on basis and death loss, I am still locking in $25 per head on the board at $96.25.
So tell me oh wise one, why is it that I can't lock in a profit by going long when feeders are doing it every day?
Now let's see who is going to try to baffle with bs.
~SH~
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Sandhusker
Rancher
Joined: 10 Feb 2005
Posts: 18081
Location: Nebraska
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| Posted: Wed Aug 11, 2010 12:12 pm Post subject: |
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If you will be selling the physical commodity, you would short the board, not go long. That is why the feeders were net shot.
If you go long and the price at delivery is down 30 cents, you lose money on both the cattle and your "lock". That is why you would short the market - so that the money you would lose on the commodity would be made on the contract.
You've got it completely bass-ackwards, as one would expect.
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~SH~
Rancher
Joined: 14 Feb 2005
Posts: 5426
Location: South Western SD
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| Posted: Thu Aug 12, 2010 6:51 am Post subject: |
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| Sand: "If you go long and the price at delivery is down 30 cents, you lose money on both the cattle and your "lock". That is why you would short the market - so that the money you would lose on the commodity would be made on the contract." |
I just showed you in a real life example how to go long on the board and not lose money on the cattle because of your position.
You're still babbling and trying to impress yourself.
~SH~
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Sandhusker
Rancher
Joined: 10 Feb 2005
Posts: 18081
Location: Nebraska
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| Posted: Thu Aug 12, 2010 5:09 pm Post subject: |
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Do you know the difference between "long" and "short"?
If you go long @ 95 and a month later it's @ 85, have you made money or lost?
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~SH~
Rancher
Joined: 14 Feb 2005
Posts: 5426
Location: South Western SD
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| Posted: Fri Aug 13, 2010 8:00 am Post subject: |
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Going back to the real time numbers I presented above, if I locked the cattle in at $96 for December and the board is $86 when the cattle are finished and the cash ("spot") market is $85.50, I will have only lost $.50 per cwt (basis) because the board will pay me the difference between $86 and $96.
If I am wrong, by all means SHOW ME where I am wrong. Not just cheap talk again.
If I lock these cattle in on the board the same day I take the cattle to the feedlot, do you not consider that a "LONG" position?
Answer these questions Sandhusker.....
~SH~
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Sandhusker
Rancher
Joined: 10 Feb 2005
Posts: 18081
Location: Nebraska
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| Posted: Fri Aug 13, 2010 12:34 pm Post subject: |
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SH, " I will have only lost $.50 per cwt (basis) because the board will pay me the difference between $86 and $96."
Not if you went long. You're going to lose the difference between when you bought the contract to when you sold the cattle and closed out your position. If you opened a long position @ $96 and closed it @ 86, you would of lost $4000 for every contract that you had, assuming you were using the fats. You would of lost more via the feeders.
You don't know long from short.
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