5 show plots of the evolution of the selected cattle crush spreads from 1995 to 2006.
1), c) high prices for corn in 1996 had an impact on the level of the spread in 1996 and 1997 due to the fact that live cattle futures prices did not increase to compensate for the higher cost of production inputs, d) the lack of liquidity on the futures market at the end of the spread life might be the cause of the high volatility of the crush at the end of the majority of the years (especially 1999 and 2004), and e) negative cattle crush spreads can be possible as they happened on five occasions in June of 2005 for the sep/sep/ apr combination due to a rapid rise in the price of feeder cattle while live cattle futures contract prices remained virtually the same over the course of that month.
The cattle crush spreads that suited this plan was the mar/mar/oct combination, which became available on September 1st, 2004 (i.
The cattle crush spread is an intermarket spread in which, in theory, a transaction is made for a particular crush value rather than making individual trades in each of the spread components.
The cattle crush spread is a tool that can be employed in two different ways to avoid exposure to the risk of variable prices (Figure 3.
The cattle crush spread is calculated using the market prices of the futures contracts.
4, the way that contracts are combined has an effect on the level of the cattle crush spread.
The methods described here were applied to the cattle crush spread resulting from the contract combinations mar/mar/oct and sep/ sep/apr (Table 4.
The following are the descriptions of the trading strategies applied on the cattle crush spread.
The cattle crush spread was shorted the first available trading day and bought back the last negotiation day.