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The Learn About Futures Insider: Feeder Cattle

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April 14, 2011 – Comments (0)

Feeder cattle futures, like live cattle, provide an opportunity for industry professionals to participate in fair price discovery and possibly try to hedge their interests against feed grain and cattle price changes. The CME Feeder Cattle contract is cash-settled.

Contract Size: 50,000 lbs

Price Quote & Tick Size: cents per pound; minimum fluctuation is $.00025 per pound ($12.50 per contract)

Contract Months: January, March, April, May, August, September, October, November

Trading Specs: Floor trading is conducted 9:05 am to 1:00 pm CT Mon - Fri; Globex trading Mon 9:05 a.m. - Fri 1:55 p.m. CT. Daily trading halts from 4:00 p.m.-5:00 p.m.

Daily Price Limit:  $.03 per pound above or below previous day's settlement price

Trading Symbols: FC; GF on Globex
[IMG]http://futurespress.com/imgndoc/laf/4-14-11%20fc.jpg[/IMG]
Past performance is not indicative of future results.
***chart courtesy of Gecko Software

[B][CENTER]Feeder Cattle Facts[/CENTER][/B]
Mature cattle, ready to be placed on a feedlot, are referred to as feeder cattle. They generally weigh less than live cattle (animals ready for slaughter) - anywhere from 650 to 850 pounds. The feedlots are often larger commercial operations which bring in feeder cattle to replace the animals sent to slaughter. These feedlots may buy the cattle from individuals or the animals will ultimately belong to an individual who will pay the feedlot for the feed bill.

Feeder cattle are classified according to age, sex, and weight, among other things. Grades range from choice or good down to utility or inferior. Prime cattle are a smaller percentage of animals which appear superior in quality. They are normally from a long line of beef cattle ancestry and have the details which suggest top quality meat.

Heifers are usually female cattle less than three years of age. Steers are likely males castrated before maturity, and a cow is a female which has given birth to one or more calves. There are other fine tuned labels such as stag, heiferette, or bull. Cattle less than a year old are calves. Yearlings are between one and two years of age. Over eighteen months old, and they are short-yearlings.

Key global cattle data may be found in the following charts:

[IMG]http://futurespress.com/imgndoc/LAF/5-6-10%20beef%20cow%20beg%20stock.jpg[/IMG]
*Data courtesy of USDA.gov

[IMG]http://futurespress.com/imgndoc/LAF/5-6-10%20calf%20crop.jpg[/IMG]
*Data courtesy of USDA.gov

[B]Key terms for cattle include:[/B]

Prime Beef - In the US, this is a grading term that is designated by the US Department of Agriculture. It refers to meat that has the highest qualities of marbling, and is young and tender, juicy and flavorful.

Feedlot - A feeding operation where cattle or other livestock are 'finished' before slaughter. Normally, the animal feeding operation has entry-level weights for animals, anywhere from 650 to 850 pounds for feeder cattle.
[B][CENTER]Key Uses[/CENTER][/B]

Feeder cattle are destined for feedlots to be monitored and fattened for slaughter. Most feedlots will employ a nutritionist to determine the feed needs of the animals on the lot in an effort to produce the most desirable combinations of muscle and fat.

Meat from cattle will be graded according the the USDA standards, and will fall somewhere in the following ranges:
[IMG]http://futurespress.com/imgndoc/LAF/LAFWeekly_BeefGrades02.jpg[/IMG]

[B][CENTER]Key Concerns[/CENTER][/B]
In addition to the following variables, if you are trading cattle, you will also want to be aware that the USDA issues reports that may impact the futures market including Cattle on Feed and Livestock Slaughter.  These reports (and others) may be found in the economics and statistics sections of the USDA website. Feeder cattle auction summaries from various states may also be a valuable source of pricing information. Weekly summaries may be found here.

Possible Trends - Cattle population and the number of calves may impact prices and the time of year may also be perceived as important.

Import and Export - Restrictions and trade agreements can often impact the quantity of imports and exports to and from various countries.

Health Issues - Concerns over red meat consumption and possible links to colon cancer or saturated fat values are often weighed against beef as a rich source of linoleic acid and B vitamins.  As health news comes and goes, domestic consumption or demand may be impacted.

Mad Cow Disease - Otherwise known as bovine spongiform encephalopathy, Mad Cow scares can wreak havoc on the cattle industry and breakouts can lead to massive slaughter and burn campaigns.  Since the BSE prion cannot be destroyed by cooking, the panic of spread can easily affect both demand and supply of cattle.

Foot and Mouth Disease - The virus that causes FMD in livestock and other cloven-hoofed animals is highly contagious and causes blisters on soft tissue in the mouth and on the feet. Although it does not have an impact on human health, infections can have significant impact on the number of livestock.

Feed Costs - Higher feed costs can typically affect the weight and rate at which a farmer will take livestock to market. Since cattle are fed a combination of roughage, grain and protein supplements (soybean meal is a popular protein source), prices for corn, alfalfa, soybean, and even wheat can impact choice of feed and affect the feed-to-meat conversion - as well as the number of days on the feedlot.
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