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Iowa State Develops New Crush Margin App for Hog and Cattle Producers
By Lee Schulz, Russ Euken
 
Livestock producers who purchase feeder cattle or weaned pigs plus the feed, and then sell finished animals at a specific point in time, take on a significant amount of both input and output price risk. Feeder cattle, weaned pig and feed prices account for a significant share of the total input cost and along with market livestock prices are volatile, adding to a producer’s risk.
 
The crush margin, a term borrowed from the soybean processing industry, describes the margin that can be hedged using futures contract prices for soybeans, soybean meal and soybean oil. A crush margin also can be calculated for cattle and hogs and can be used as a risk management tool. For fed cattle, the margin is live cattle value minus feeder cattle value and estimated corn fed value. For market hogs, the margin is lean hog value minus weaned pig value and estimated corn and soybean meal fed value.
 
Lee Schulz, ISU Extension and Outreach livestock economist, has been tracking the crush margins for cattle and hogs and posting them online for several years. The margin is calculated every Wednesday using the futures close on that date. The web page will continue and have historical margins in addition to comparing placement month margins.
 
This new ISU Livestock Crush Margin App is in addition to the ISU Livestock Crush Margin website and allows users to select cattle or hogs and pick their placement date for feeder cattle or weaned pigs. It will use the appropriate futures contract close price from the previous day to calculate the margin without any additional inputs. Historical basis information Schulz has compiled is programmed to be used in the app. Users also can enter their own prices or basis for the inputs if they wish to override the defaults.
 
Russ Euken, ISU Extension and Outreach livestock specialist, said the app was designed to minimize inputs, yet still provide some flexibility for users.
 
“The app is a web-based app and internet access is needed to use the app to access CME futures price," Euken said. "The app will run in a browser on your computer or the app can be saved on a smart phone for access by selecting the icon from the screen.”
 
The app was developed as part of a North Central Region Risk Management Education grant for livestock price risk management education. Schulz said evaluating margins and taking advantages of profitable opportunities can be a valuable asset to producers in managing risk.
 
“Using futures prices to evaluate and manage the crush margin between revenue and the major input costs, which change with market conditions, is a good price risk management strategy," Schulz said.