Introduction: Why Cattle Feeders Must Understand Basis
For cattle feeders, basis is not just a math formula — it’s one of the most important profitability signals in the entire feeding business. While futures prices set broad market expectations, basis reveals the truth about local supply, packer demand, delivery timing, and the real cash value of finished cattle.
And unlike cow-calf producers, feeders live and die by closeouts, meaning:
- Cost of gain
- Current cash bids
- Delivery windows
- Carcass quality
- Grid premiums/discounts
- Packer leverage
…all flow directly into the basis behavior.
Understanding cattle basis contracts helps feeders decide not only when to market finished cattle, but how to use futures and options to manage risk without losing flexibility.
This guide explains:
- What the cattle basis really represents
- When basis contracts help a feedlot
- When they hurt
- How feeders combine basis with futures/puts
- Common mistakes feeders make
- How to apply basis knowledge in volatile markets
What You Will Learn
- How cattle basis differs from grain basis
- Why basis widening or strengthening in fed cattle markets
- When basis contracts reduce risk
- When basis traps feeders
- How to pair basis tools with futures and options
- How the packer’s behavior affects the basis
- How basis relates to the cost of gain, delivery timing, and closeout risk
What Is Cattle Basis?
Cattle Basis = Local Cash Price – Futures Price
Example:
If the February Live Cattle futures are $184 and a packer in Nebraska bids $188 cash:
Basis = $188 – $184 = +4
A positive basis means strong local packer demand relative to futures.
A negative basis means packers have leverage, or cattle are backed up.
But unlike grain, cattle basis is influenced by:
- Plant capacity
- Saturday kills
- Regional showlists
- Weather delays
- Feedlot performance and out-weights
- Yield and grade outcomes
- Packer procurement strategy
That’s why cattle basis behaves differently from grain basis.
How Cattle Basis Behaves Compared to Grain Basis
Grain Basis
- Driven by freight
- Storage
- Elevators competing for bushels
- Seasonal supply
Cattle Basis
- Driven by packer behavior
- Regional showlists
- Delivery-week leverage
- Plant downtime
- Quality-grade spreads
- Feedlot pen conditions
Grain follows logistics.
Cattle follow power dynamics.
This is why feeders often say:
“Futures lie, but basis tells the truth.”
Why Basis Matters to Cattle Feeders More Than Ranchers
Cow-calf producers sell calves once a year.
Cattle feeders market cattle every month, with margins changing daily based on:
- Cost of gain
- Closeout weights
- Premium/discount grids
- Weekly cash market strength
- Nearby vs. deferred futures
- Local basis variance
Since feeders work on thin margins, a $2–$4 basis move can swing profit by $20–$40/head — enough to make or break a turn.
When Basis Contracts Help Cattle Feeders
Basis contracts are agreements in which the feeder locks in the basis now and prices later by selecting a futures month.
These help when you want:
1. Flexibility With Closeout Dates
Feeders often don’t know the exact date finished cattle will hit the out-weight range. A basis contract avoids locking into a futures month too early.
2. Strong Local Demand (Positive Basis)
If your region has packers bidding aggressively, locking basis lets you capture that premium even if futures fall.
3. Weak Nearby Futures but Strong Cash
Example situation:
February futures are dropping, but Nebraska packers are still bidding strong cash.
A basis contract captures the cash strength while giving you time to price futures strategically.
4. Grid Marketing With Known Premium Potential
If pens historically:
- Yield well
- Grade Choice/Prime
- Hang consistent carcasses
…locking basis allows you to buy time while capturing packer incentives.
When Basis Contracts Hurt Feeders
1. When Futures Rally Unexpectedly
If you lock basis too early and futures jump, your eventual price may be worse than simply selling cash.
2. When Cattle Back Up Regionally
Weather delays, mud, heat stress, or onboarding health issues can extend days on feed and push cattle into a lower-demand period.
While your cattle sit, the basis can collapse.
3. When Packers Gain Leverage
Holiday kills, plant breakdowns, or large showlists can cause the basis to weaken dramatically.
4. When Captive Supply Is High
Formula-heavy weeks often weaken cash bids, hurting basis contracts that were set expecting stronger cash.
How Cattle Feeders Use Basis Contracts With Futures and Options
1. Basis + Futures (Later):
You lock basis now, price futures when timing is right.
2. Basis + Put Options:
Perfect when you want:
- Downside protection
- Upside opportunity
- Flexibility on marketing date
Put options = insurance.
Basis contract = local cash advantage.
3. Basis + Hedge Later Spread Trades:
Feeders sometimes hedge in a higher nearby month and roll later.
But this creates:
- Spread risk
- Roll cost
- Unintended spread trading
This is one of the most common mistakes feeders make.
Common Basis Mistakes Cattle Feeders Make
1. Hedging the Wrong Month
Example:
You’ll sell cattle in February, but December futures are $2 higher, so you hedge December and plan to roll.
Congratulations — you are now a spread trader.
2. Ignoring Regional Basis Data
Kansas ≠ Nebraska
Iowa ≠ Texas
Basis differs dramatically by region.
3. Locking Basis Too Early
If you don’t know:
- Closeout weight
- Delivery window
- Pen performance
- Health outcomes
…locking basis can box you in.
4. Waiting on a Packer Call
When feeders market cattle, “when the phone rings,” the basis is usually:
- Weak
- Manipulated
- Against the feeder
The packer always calls when they have leverage.
5. Assuming High Prices Mean Strong Basis
High futures ≠ strong basis.
In fact, high futures often weaken the basis because packers don’t want to chase cash.
Why High Cattle Prices Cause Basis Regret
During high markets, cattle feeders make predictable mistakes:
- Thinking “the market isn’t done yet”
- Passing on strong basis bids
- Selling too many cattle, cash-only
- Avoiding hedging because profits “look good”
- Waiting for one more $2 rally
- Ignoring risk management until the market breaks
When the turn comes — and it always does — the regret is immediate:
“Why didn’t we hedge when we had margin?”
High cattle prices create comfort, not discipline.
How Feeders Should Use Basis in Today’s High Market
1. Lock Basis When Packers Are Hungry
When kills are strong and showlists are current, basis strengthens. Capture it.
2. Use Cattle Puts for Downside, Basis for Local Strength
This keeps flexibility while protecting margins.
3. Avoid Spread Games
Hedge the month you plan to sell.
4. Track Your Historical Basis
Good feedlots track basis the same way they track closeouts.
5. Use Basis to Inform Breakevens
The basis impacts how aggressively you should place cattle.
Cattle Feeders know the truth: pens fill fast, margins change faster, and basis moves whether you’re ready or not.
If you want someone who speaks your language — closeouts, grids, out-weights, cost of gain — our brokers at Ag Optimus have been in the trenches with feeders for years.
Let’s talk through your basis, your marketing window, and what hedging tools might fit your operation — no pressure, no hype.
Toll Free (800) 944-3850 | Local (712) 545-0182
www.agoptimus.com
Nate always says:
“Futures will argue with you. Basis won’t.”
(…and he’s usually right, which is annoying.)
Conclusion: Basis Is the Most Honest Signal in Feeding Cattle
Futures reflect national sentiment.
Basis reflects your local cash reality.
For cattle feeders, basis tells you:
- Whether the Packers are short-bought
- Whether your region is long cattle
- Whether your delivery window is strong
- Whether futures are cheap or expensive relative to cash
Used properly, basis contracts give feeders the flexibility they need while still allowing futures or options to protect downside risk.
Cattle Basis FAQ: What Every Feeder Needs to Know About Cash–Futures Price Differences
Q1: What is cattle basis, and why does it matter to feeders?
Cattle basis is the difference between your local cash price and the CME futures price. For cattle feeders, basis determines what your cattle actually sell for, not what the futures board says.
Good basis = higher cash checks.
Bad basis = frustration, even in a strong market.
Q2: Why does the basis move differently from futures?
Futures are a national price, while your cash price reflects local supply, packer demand, freight, carcass quality, and pen conditions.
Futures can rally while your local cash bid stays flat — or even drops.
Q3: Why does my region have consistently strong or weak basis?
Basis is heavily influenced by local dynamics:
- Packer competition (or lack of it)
- Freight distance to major plants
- Regional cattle supply
- Carcass quality history of your area
- Seasonal placement trends
Some regions always have a stronger basis. Others fight a discount year-round.
Q4: What’s the difference between the feeder cattle basis and the live cattle basis?
- Feeder cattle basis reflects the cost of gain, corn prices, and feedlot demand.
- Live cattle basis reflects packer demand, carcass quality, and regional grid premiums.
Feeders care about the feeder basis when buying cattle… and the live basis when selling finished cattle.
Q5: Can a basis contract replace a futures hedge?
No.
A basis contract locks in the basis, not the price.
Futures (or puts) protect the price.
Basis contracts can help, but they are not price protection by themselves.
Q6: How do I combine basis contracts with puts or futures?
The common combo is:
- Lock the basis with your packer
- Use puts or futures to protect the actual price
This gives you:
- Known basis
- Known downside protection
- Flexibility if prices rally
Q7: Why does basis collapse when futures rally?
Because:
- Packer margins shrink
- Feedlots want to sell
- Futures traders bid the board up faster than the cash market can follow
Cash lags the futures rally → basis weakens.
Q8: Why does basis get stronger when the board crashes?
As futures fall:
- Packers often raise cash bids to secure inventory
- Feeders hold cattle back
- Supply tightens locally
Cash holds firm → basis strengthens.
Q9: How can a feeder protect against widening basis?
Tools that help:
- Negotiated cash (more leverage than grids in some markets)
- Short futures (flat-price hedge)
- Basis contracts + put options
- Trading delivery-month contracts that align with your marketing window
Biggest protection: hedge in the same contract month you intend to market in.
Q10: What are the most common basis mistakes feeders make?
✔ Hedging in the wrong month
✔ Assuming basis will “fix itself”
✔ Rolling hedges without understanding the spread
✔ Using basis contracts without price protection
✔ Confusing a strong basis with a strong cattle market
Q11: When should I avoid basis contracts completely?
Avoid them when:
- Futures are offering excellent hedge levels
- You expect cash to strengthen
- Your region is volatile or driven by one packer
- You don’t understand how the packer calculates basis
A basis contract with no hedge = market exposure you might regret later.
Q12: How does the packer leverage affect the basis?
Heavily concentrated packer regions often have:
- Weaker basis
- More volatile basis changes
- Forced marketing timing
More packers = stronger basis.
One packer = basis pain.
Q13: Should feeders hedge basis differently in drought or tight supply years?
Yes.
During drought, lighter weights and early placements tighten supply, often improving the basis for finished cattle. In tight-supply years, feeders may lock basis earlier because packers are more aggressive and cash prices can run ahead of the board.
Q14: What’s the difference between a strong basis and a strong cash price?
Strong basis simply means cash is outperforming futures.
You can have:
- Strong basis + terrible cash prices
- Weak basis + record-high cash prices
They are related — but not the same thing.
Q15: When should I call a broker about a basis issue, not a futures issue?
Call a broker when:
- Your packer basis is widening faster than futures explain
- Local cash feels “off” compared to national moves
- Your hedge month doesn’t match your cattle
- You don’t know how a roll affects your basis exposure
A futures problem is about price.
A basis problem is about truth.