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How to Invest in Cattle Commodities

Two commodities futures contracts exist for the cattle trader and investor: the live cattle and the feeder cattle contracts, which both trade on the Chicago Mercantile Exchange (CME).

Live cattle futures

The live cattle futures contract, traded on the CME, is unique because it was the first contract the CME launched to track a commodity that’s actually alive. Before the live cattle futures, all futures contracts were for storable commodities, such as crude oil, copper, and sugar. The CME live cattle futures contract, launched in 1964, heralded a new era for the exchanges. Various market players, including cattle producers, packers, consumers, and independent traders, now widely trade this futures contract.

Consider the specs of this futures contract:

  • Contract ticker symbol (open outcry): LC

  • Electronic ticker (CME Globex): LE

  • Contract size: 40,000 pounds

  • Underlying commodity: Live cattle (55% choice, 45% select, Yield Grade 3 live steers)

  • Price fluctuation: $0.00025 per pound ($10 per contract)

  • Trading hours: 9:05 a.m. to 1:00 p.m. (CST), electronic and open outcry

  • Trading months: February, April, June, August, October, and December

The live cattle contract is popular partly because it allows all interested parties to hedge their market positions, to reduce the volatility and uncertainty associated with livestock production in general and live cattle growing in particular.

If you decide to trade this contract, keep the following market risks in mind: seasonality, fluctuating prices of feedstock, transportation costs, changing consumer demand, and threat of diseases (such as mad cow disease). The market for the live cattle contract can be fairly volatile.

Price of live cattle futures on the CME, 2000-2010.
Price of live cattle futures on the CME, 2000-2010.

Feeder cattle futures

The CME launched a feeder cattle futures contract in 1971, only a few years after the launch of the groundbreaking live cattle contract. The feeder cattle contract is for calves that weigh in at the 650–849 Pound range, which are sent to the feedlots to get fed, fattened, and then slaughtered.

Because the CME feeder cattle futures contract is settled on a cash basis, the CME calculates an index for feeder cattle cash prices based on a 7-day average. This index, known in the industry as the CME Feeder Cattle Index, is an average of feeder cattle prices from the largest feeder cattle producing states in the United States, as compiled by the U.S. Department of Agriculture (USDA).

To get livestock statistical information, you should check out the U.S. Department of Agriculture’s statistical division.

Here are the specs of this futures contract:

  • Contract ticker symbol (open outcry): FC

  • Electronic ticker (CME Globex): GF

  • Contract size: 50,000 pounds

  • Underlying commodity: Feeder cattle (650–849 pound steers, medium-large #1 and medium-large #1–2)

  • Price fluctuation: $0.00025 per pound ($12.50 per contract)

  • Trading hours: 9:05 a.m. to 1:00 p.m. (CST), electronic and open outcry

  • Trading months: January, March, April, May, August, September, October, and November

Two important traits characterize the feeder cattle contract:

  • Like many meat commodities, it’s fairly volatile.

  • It’s a thinly traded contract — in other words, it doesn’t have as much liquidity as some of the other CME products.

    Price of feeder cattle futures on the CME, 2006–2010.
    Price of feeder cattle futures on the CME, 2006–2010.
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