Live Cattle Futures Trading Basics

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How to trade live cattle

We run through the basics of trading cattle, explaining the dynamics of the market and how to trade it.

Cattle trading basics

The global cattle market is worth hundreds of billions of dollars. Cattle are predominantly turned into beef to feed the world’s growing population, although by-products are used to create the likes of leather or gelatine.

There are fewer speculators trading cattle compared to other commodities, with many market participants trading cattle to hedge against exposures to risk. Establishing a cattle operation from scratch can take over a decade but just a few years of tough conditions can prove fatal to a farmer’s herd. This makes the market very cyclical and vulnerable to volatile price movements.

We go through the basics of the cattle market and explain how to trade it.

Live cattle vs feeder cattle

There are two types of cattle that are traded: live cattle and feeder cattle. The differences between the two are outlined in this brief description of the cattle production process:

  1. Farmers breed cows and bulls either by natural breeding or, more commonly, artificial insemination.
  2. Calves are born and kept with the mother for six to eight months.
  3. Once the calf has reached a weight of around 500-600 pounds, it is weaned from its mother and raised on the ranch for between six to 10 months.
  4. Once the calf has reached a weight of 600-800 pounds it is classed as feeder cattle: ready to be fattened up with high-energy feedstock before being slaughtered.
  5. Farmers separate the herd, retaining those capable of reproduction for future breeding and earmarking those that are to be slaughtered. Cattle can be chosen for slaughter for a variety of reasons, including bad health, age or high feed costs.
  6. The cattle to be slaughtered are either fed on the farmer’s ranch, in a third-party commercial feedlot (whereby the farmer owns the cattle but somebody else is responsible for feeding and rearing it), or sold on.
  7. Once it has reached a weight of between 1200-1400 pounds (although this varies, with some cattle weighing as much as 1900 pounds) the cattle becomes classed as live cattle that is ready for slaughter.
  8. The live cattle is then either sold directly to food production companies or auctioned off.

In a nutshell, the two categories represent cattle at different stages of the production cycle. Live cattle are a finished product while feeder cattle are an unfinished product.

What moves the price of cattle?

As feeder cattle represent future stock of live cattle the price of both is heavily intertwined. However, while some drivers cause the same effect on the price of live and feeder cattle, prices can be inversely affected by others, namely:

Demand for beef

Beef is a more expensive source of protein compared to alternatives like lamb or chicken, and demand can often reflect economic conditions. Demand often falls in times of a recession to push prices lower and rise during times of growth and prosperity. For example, beef consumption on a per person basis is growing in emerging economies in the east as people’s income increases.

In addition, changes in dietary habits also impact demand. This is particularly acute right now amid the rise in popularity of vegetarian and vegan diets in western economies like the US and the UK, where beef consumption per capita is considerably lower than it was decades ago. Still, the rise in the overall population (and therefore overall consumption) means demand for beef in advanced economies is still growing, albeit at a slower rate than others like China, Brazil or Argentina.

Both supply and demand can also be impacted by diseases, such as ‘mad cow disease’ (bovine spongiform encephalopathy).

Price of feed

The price of feed is a major driver behind the price of cattle and a primary reason why demand can shift between live and feeder cattle, creating an inverse relationship in prices. Whereas live cattle can be purchased and immediately slaughtered, feeder cattle must be maintained for six to 10 months. This means additional cost inputs have to be considered when purchasing feeder cattle to understand what the ‘finishing costs’ are. This primary comprises the costs to feed the cattle for it to be ready for slaughter, but other factors are also considered such as how much land is needed to raise the cattle or whether vaccinations are needed.

The cost of feed therefore dictates the profit margin that can be earned by buying feeder cattle and selling it on at a later date as live cattle. This is why movements in the price of feed is so influential over the price of cattle and shifting demand from live to feeder, or vice-versa.

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Cattle eat a variety of feedstocks but, from an investor point of view, the four commodities worth watching are corn, barley, chicago wheat and soyabeans. When prices of feedstock are in decline the possible margin to be made on feeder cattle is greater and can therefore push up demand. When prices are rising the opposite is true and live cattle become a more attractive investment opportunity. Feed prices can also have other severe effects on the quality and quantity of supply of new live cattle supplies: feeder cattle can be prematurely put forward for slaughter if feed costs are rising higher or held-back when they are in decline in order to bulk up the weight further and maximise the opportunity. This is also why attention is paid to other characteristics of the feeder cattle being purchased, such as the feed-to-weight ratio (the ability to convert feed into weight gain).

Seasonality and weather

The cattle and beef markets are very cyclical, therefore, any disruption to supply or decline in demand can have a severe effect on prices. Weather and natural disasters can play havoc on agricultural markets through the likes of flooding or drought, which can impact both cattle and the crops that feed them. For example, over 40% of all the cattle in Canada is located in Alberta, which has previously been hit by drought. The country’s Agriculture and Forestry department said only last year that a lack of rainfall and high temperatures was causing problems and that farmers in Saskatchewan – responsible for 21% of the country’s cattle – to invest in larger grass caches to protect themselves from future drought.

Cattle on Feed report

The monthly Cattle on Feed report is released on the third Friday of each month and provides insightful statistics into the US cattle market, which is the largest in the world. It collects data from over 2,000 ranchers, representing over 98% of US supply.

The report contains three important elements of information. The first is the number of marketings, representing the amount of cattle that have been moved from feedlots to be slaughtered and demonstrating the amount of current supply in the market. The second is the number of cattle that have been placed in feedlots, representing the amount being readied for slaughter and supply that will come into the market within a few months. The third is the number of calves that have been weaned and moved onto feed, which represents future supply over the longer term.

Other countries that release data on cattle markets include Canada and Australia. CanFax reports numbers for the two biggest regions in Canada, and Meat and Livestock Australia provides figures for Australia.

Cattle trading strategies

Trading cattle is a global game with participants often investing to hedge against inflation or to capitalise on rising demand as a result of global growth. The price of cattle and other livestock often suffer from inflation when economies are hit by a recession and when economies are growing consumer purchasing power increases to push demand for beef higher, with the latter proving particularly true in emerging markets in South America and Asia.

The prices of live cattle and feeder cattle are highly correlated, so traders try to profit from the spread between the two. For example, some trade the spread available on the price of live cattle versus the price of feeder cattle plus the grain needed to feed them. This sees traders purchase live cattle futures and sell futures in feeder cattle and corn, or vice-versa.

Traders can also look for imbalances in the price between live and feeder cattle. As feeder cattle represent future supply then any disruption should feed through to the price of live cattle, and if there is an oversupply of live cattle then this should weigh on the price for new cattle coming onto the market, and so on.

Another option is to trade meat production and processing stocks, such as Tyson Foods, the biggest exporter of beef out of the US, or UK-based FTSE 250 constituent Cranswick. However, investors must consider the slew of other variables that applies to stocks like this: the price of cattle is just one driver of their share prices.

Cattle market: a global snapshot

The global beef market is worth over $300 billion 1 and demand is expected to outstrip increases in production over the immediate future, according to the US Department of Agriculture (USDA). The US is by far the biggest cattle market in the world, being the biggest producer, consumer and importer of cattle in the world. However, the fastest growing countries are in emerging economies, with demand increasing in the likes of China and South Korea and exports increasing in countries such as Brazil and Argentina.
Top players in global cattle market in 2020 (% of global share)

Live cattle futures

The Chicago Mercantile Exchange broke the mold of traditional futures markets in 1964 by introducing a futures contract on live cattle, an innovative move because futures were only traded on storable commodities such as grain at the time. But the livestock industry appeared ready for a central forward market with the advantages futures could bring. Since then, the live cattle futures contract has undergone significant changes, and each of these changes has enhanced the usefulness of the contract in risk management programs. These tools have enabled cattle producers to manage their price risk more effectively. CME continues to work with the cattle industry to meet producers’ changing needs by improving the live cattle futures contract.

In addition to live cattle futures, live hog futures were added in 1966, and feeder cattle were added in 1971. In 1997, lean hog futures and options replaced the live hog contracts. In 1999, stocker cattle futures and options were added.

CME live cattle futures specifications

Live cattle futures, Chicago Mercantile Exchange, symbol LC. Contract Size is 40,000 lbs. The minimum tick size is $0.025/cwt, worth $10 per contract.

Trade electronically on Globex Monday 09:30 a.m. U.S. ET to 2:05 p.m. U.S. ET.

Principal trading months for cattle futures include February, April, June, August, October, and December.

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Live Cattle Futures

Until they reach a specific weight (typically 600-800 lbs), live cattle are specially raised for beef production. This process begins when they are calves and ends when they reach the required weight; after this, they are then transferred to feedlots and considered “feeder cattle”. Contracts for live cattle in the CME are for 18 metric tons.

Live Cattle Futures Contract Specifications
Contract Size 40,000 pounds (

18 metric tons)

Price Quotation Cents per pound
Trading Hours Monday 9:05 a.m. Central Time/CT-Opening. At 4:00 p.m. CT on Monday- Thursday, the markets halt and restart at 8:00 a.m. CT on the next morning. Friday 1:55 p.m. CT-Close
Minimum Price Fluctuation $.00025 per pound ($10 per contract)
Product Code CME Globex: LE
CME ClearPort: 48
Clearing: 48
Listed Contracts February (G), April (J), June (M), August (Q), October (V) & December (Z)
Settlement Method Deliverable
Last Trade Date Last business day of the contract month, 12:00 p.m.
Trade At Marker Or Trade At Settlement Rules Trading at settlement is available for first 2 listed futures contract months, a calendar spread between the first and second contract month, and are subject to the existing TAS rules. The Last Trade Date for CME Livestock TAS products will be the second to last business day in the month prior to the named contract month.

Trading in all CME Livestock TAS products will be 9:05-13:00 Chicago time on Mondays or on the Tuesdays that follow a Monday holiday, and Tuesday through Friday 8:00-13:00, Chicago time.

TAS products will trade a total of four ticks above and below the settlement price in ticks of the corresponding futures contract (0.00025), off of a “Base Price” of 0 to create a differential (plus or minus 4 ticks) versus settlement in the underlying product on a 1 to 1 basis. A trade done at the Base Price of 0 will correspond to a “traditional” TAS trade which will clear exactly at the final settlement price of the day.

Settlement Procedures Livestock Futures Settlement Procedures
Exchange Rules These contracts are listed with, and subject to, the rules and regulations of CME.
Source: CME Group

Live Cattle Facts

Most cattle are bred in the summer to ensure that their calves are born in the spring season because of both the temped climate and the abundance of pasture to feed on. Around 8 months of age, cattle are weaned from their mothers and sent to feed lots in order to encourage growth to full size (600-800 lbs.). At the feed lots, live cattle are fed a certain diet in order to inhibit weight gain. When the cattle reach an approximate weight of 1,200 lbs., they are considered to be suitable for slaughter and are sold to meat packers. The Unites States exports over 2 billion pounds of beef very year.

Live cattle futures and options are traded in cents per pound on the Chicago Mercantile Exchange. Live cattle futures can allow traders to address price risk among those involved in the trade of live cattle and to assess supply and demand of cattle for both the current and future outlook.

Last updated October 2020

Additional Info

Recent Posts on Live Cattle

  • Beyond the Spotlight: March 23, 2020 (Rice, Cocoa, Cattle) (3/23/2020) – Beyond the Spotlight is a weekly video released on Mondays that spotlights two or three markets that may become trading opportunities for the week ahead. This enables you as a subscriber of the Trade Spotlight advisory service to look ahead with us, while potentially creating additional trading opportunities for yourself. The week’s video linked below… Read more.
  • Trade Spotlight: Futures – Weekly Summary: Live Cattle (12/20/2020) – The Trade Spotlight is working a short Live Cattle order.
  • Trade Spotlight: Futures – Weekly Summary: Chicago Wheat, Live Cattle (12/13/2020) – The Trade Spotlight was stopped out of a long Chicago Wheat position and is working a short Live Cattle order.

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