lumber

Discussion in 'Ag Futures' started by Spectre2007, Feb 24, 2007.

  1. longterm chart

    http://futures.tradingcharts.com/chart/LU/M

    weekly chart

    http://futures.tradingcharts.com/chart/LU/W

    daily chart

    http://futures.tradingcharts.com/chart/LU/37


    copper chart

    http://futures.tradingcharts.com/chart/CP/27

    with the housing industry as backdrop, copper and lumber moved up together with the start of the month. Yet the debacle in subprime lending seems to be dominating shortterm sentiment, both copper and lumber should fall back.

    live cattle prices look to be breaking out ...grains are in a bull market. To maintain cattle, you need to feed them grains, if you look at cattle and grain to meat conversion, the cattle represent converted grain which needs to be bid up, otherwise in essence your buying grain cheaply at current prices in cattle. Its arbitrage of both markets.

    http://futures.tradingcharts.com/chart/LC/27

    http://futures.tradingcharts.com/chart/SB/W

    soybeans broke out to the upside with start of the year, yet cattle is slowly working to do the same.
     
  2. Cattle to grain ratio is interesting. Have you ever seen a chart on this?
     
  3. I havent seen a chart, but logically it makes sense, unless other factors dominate market.
     
  4. you could probably do the math:

    1 cattle = # lbs of meat

    1 lb of meat = # bushels of grain

    price of grain at point B - A ( historical change in grain)

    would imply a change in price of cattle by a certain amount.
     
  5. its a short term cost factor too, it costs more to maintain a herd of cattle, and some are unloading them in the market. But longterm all it does is increase volatility in shortterm with a upward trend bias in longterm picture.
     
  6. I really don't know anything about how much cows eat, but do you know how much corn they eat until they can be made into hamburgers? :)
     
  7. cattle don't need to eat necessarily grains as 100% of their diet, it seems farmers switch ratios of different inputs to produce different qualities of beef.

    http://www.uaex.edu/Other_Areas/publications/PDF/FSA-3047.pdf

    some advocate refraining from feeding cattle grains, in regards to research dealing with different types of fat content. If grains are expensive, then more fields are used for planting grains, and less grass is available, and the cost of maintaining cattle increases.
     
  8. SHORT-TERM grain price spikes raise heck with livestock profitability and usually depress livestock prices, as livestock producers reduce the amount they'll spend for feedlot replacement stock. HOWEVER, LONG TERM SHIFTS IN THE PRICE OF GRAIN, WILL FORCE THE PRICE OF MEAT HIGHER, as the meat processors will gradually be able to inflate the price of processed beef in part due to the reduced cattle supply. ETHANOL WILL INCREASE THE COST OF MEAT, IT'S GONNA SUCK UP A LOT OF CORN, WHICH WILL INCREASE THE COST OF CATTLE PRODUCTION, SUPPLY OF CATTLE WILL BE REDUCED AND NOT FED TO AS HEAVY OF SLAUGHTER WEIGHTS.

    Cattle in feedlots usually eat 8 lbs of feed for each 1lb of gain. That is called feed conversion. Since the ration is usually 80% corn, you can figure that it takes around 7# of corn to make a pound of meat.

    Most feedlot cattle enter the lot off of grass pasture at about 700#. They are then fed grain based rations until about 1200#. So 500# of gain X 7lbs = 3500# of corn or 63 bushels per head

    THERE IS ALSO A TRADE MOST AG BROKERS KNOW ABOUT AND ITS CALLED THE 'Cattle Crush'. Long feeder cattle/Short Live Cattle/Long Corn futures. Here's a link: http://www.cbot.com/cbot/docs/43795.pdf

    As far as a chart goes, brokers and feeders have been watching this for years.
    Steer/Corn Ratio - (per the CBOT Website)

    The relationship of cattle prices to feeding costs. It is measured by dividing the price of cattle ($/hundredweight) by the price of corn ($/bushel). When corn prices are high relative to cattle prices, fewer units of corn equal the dollar value of 100 pounds of cattle. Conversely, when corn prices are low in relation to cattle prices, more units of corn are required to equal the value of 100 pounds of beef. A ratio used to express the relationship of feeding costs to the dollar value of livestock.

    Hope this helps.

    GM
     
  9. it does, thanx grainmerchant.
     
    #10     Feb 24, 2007