CME Group offers two related futures contracts that provide direct exposure to the cattle and beef market.
Feeder Cattle futures (GF) represent young cattle that have grazed on pasture and reached a weight of 700 to 899 pounds. These cattle will be placed in a feedlot where they will be fed a customized grain-based diet for approximately four to six months or until they reach their full frame and weight potential. Feeder Cattle futures are financially-settled to the CME Feeder Cattle Index.
Once cattle have reached their potential to gain and weigh between 1,050 and 1,500 pounds, they are referred to as fed or live cattle, and are represented by CME Live Cattle (LC) contract. The Live Cattle futures contact is physically delivered. This entire production cycle from pasture to plate generally takes two years.
In 2019, the US produced 26.9 million pounds of beef and consumed 57.8 pounds per capita, or 25% of the global beef demand. The major feeder cattle producing states are Colorado, Iowa, Kansas, Missouri, Montana, Nebraska, New Mexico, North Dakota, Oklahoma, South Dakota, Texas, and Wyoming. Data from these states is compiled to calculate the CME Feeder Cattle Index.
Each Live Cattle futures contract represents 40,000 pounds with a minimum price fluctuation of $.00025 per pound, or $10 per tick. The contract trades Monday-Friday from 8:30 a.m. to 1:05 p.m. Central Time (CT).
The Feeder Cattle futures contract represents 50,000 pounds with a minimum tick increment of $.00025 per pound, or $12.50 per tick. The contract also trades Monday-Friday from 8:30 a.m. to 1:05 p.m. Central Time (CT).
Market participants trading cattle monitor reports from the US Department of Agriculture, or USDA. One particular report that cattle traders anticipate is the Cattle on Feed Report, which contains information about the total number of cattle and calves on feed, placements, and marketings by class and feedlot capacity.
Market participants also closely analyze reports detailing cattle auctions, slaughter numbers and the supply of boxed beef.
To devise a trading strategy, GF and LE traders combine USDA reports with information about the weather, corn and other agricultural grains.
Cattle graze on pasture for most of their lives until they are placed into a feedlot where they are fed on average 25 to 30 pounds of dry matter per day on a ration that is 70%-90% corn. Consequently, corn prices can dramatically impact the price of LE. Should the cost of corn and other feed rise too high, a rancher will slaughter the herd early and at a lower weight, which impacts the value on both nearby and back-month cattle contracts.
The size and health of the herd is also sensitive to weather; unusually hot or cold weather slows the rate at which cattle gain weight, which in turn reduces their final slaughter weight. Genetics also play a major role. As with other agricultural products, cattle volumes and prices are seasonal.
Additionally, a trader needs to stay alert for breaking news that could have a drastic impact on the supply and demand for beef. For example, a news report about a disease outbreak could impact global demand patterns for years.