Investing in Cattle through Futures Contracts

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

Investing in live cattle

The live cattle futures contract is widely traded by various market players, including cattle producers, packers, consumers, and independent traders. Here are the specs of this futures contract:

  • Contract ticker symbol: LC

  • Electronic ticker: LE

  • Contract size: 40,000 pounds

  • Underlying commodity: Live cattle

  • Price fluctuation: $0.00025/pound ($10.00 per contract)

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

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

One of the reasons for the popularity of the live cattle contract is that it allows all interested parties to hedge their market positions in order to reduce the volatility and uncertainty associated with livestock production in general, and live cattle growing in particular.

If you do trade this contract, keep the following market risks in mind: seasonality, fluctuating prices of feedstock, transportation costs, changing consumer demand, and the threat of diseases (such as mad cow disease).

Investing in feeder cattle

The feeder cattle contract is for calves that weigh in at the 650- to 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 seven-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).

Here are the specs of this futures contract:

  • Contract ticker symbol: FC

  • Electronic ticker: GF

  • Contract size: 50,000 pounds

  • Underlying commodity: Feeder cattle

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

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

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

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