1. Commodities: Introduction
  2. Commodities: Cocoa
  3. Commodities: Coffee
  4. Commodities: Copper
  5. Commodities: Corn
  6. Commodities: Cotton
  7. Commodities: Crude Oil
  8. Commodities: Feeder Cattle
  9. Commodities: Gold
  10. Commodities: Heating Oil
  11. Commodities: Live Cattle
  12. Commodities: Lumber
  13. Commodities: Natural Gas
  14. Commodities: Oats
  15. Commodities: Orange Juice
  16. Commodities: Platinum
  17. Commodities: Pork Bellies
  18. Commodities: Rough Rice
  19. Commodities: Silver
  20. Commodities: Soybeans
  21. Commodities: Sugar
  22. Commodities: Conclusion

By Noble Drakoln

Feeder cattle are weaned calves that have been raised to a certain weight and then sent to feedlots to be fattened before they are slaughtered. On average, three to four months is required to fatten the cattle from a starting weight of 600-800 pounds to the desired finished weight of 1,000-1,300 pounds.

Raising cattle for beef consumption occurs throughout the world. Roughly 1.3 billion heads of cattle are currently being raised worldwide, with no decrease in sight. The number of cattle brought into feedlots provides the best estimation of whether the near future will produce a glut or a shortage of live cattle. (Find out how to trade these hog-wild commodities, in Learn To Corral The Meat Markets.)

A sample commodity futures contract for feeder cattle is shown in the following table.

Feeder Cattle Contract Specifications
Ticker Symbol Open Outcry: FC (CME)
Globex Electronic: GF
Contract Size 50,000 pounds
Non-Deliverable Effective with the January 2000 contract, the index was renamed the CMEFeeder Cattle Index and Medium No.1 and Medium and Large No.1 feeder steers weighing between 800 and 849 pounds were added to the calculation.
Contract Months Jan, March, April, May, Aug, Sept, Oct and Nov
Trading Hours
CME Open Outcry: Monday-Friday 9:05am-1pm CST

Globex Electronic: Monday-Tuesday 9:05am-4pm CST
Last Trading Day Trading shall terminate on the last Thursday of the contract month.
Last Delivery Day There is no delivery of feeder cattle. They are all settled in cash seven calendar days ending on the day on which trading terminates
Price Quote Cents per feeder price at a given weight (cwt)
Tick Size 1 point = .0001 cents per pound = $5
Daily Price Limit
(Not applicable in electronic markets)
There shall be no trading at a price more than 3 cents per pound above or below the previous day\'s settlement price.

Understanding Feeder Cattle Contracts

Like every commodity, feeder cattle has its own ticker symbol, contract value and margin requirements. To successfully trade a commodity, you must be aware of these key components and understand how to use them to calculate your potential profits and loss.

For instance, if you buy or sell a feeder cattle futures contract, you would see a ticker tape handle that looks like this:

FC8H @ 107.950

This is just like saying "Feeder Cattle (FC) 2008 (8) Mar (H) at $107.950 per hundred weight (cwt) (107.950)." A trader buys or sells a feeder cattle contract according to this type of quotation.

Depending on the quoted price, the value of a commodities contract is based on the current price of the market multiplied by the actual value of the contract itself. In this instance, the feeder cattle contract equals the equivalent of 50,000 pounds (500 cwt) multiplied by our hypothetical price of $107.95, as in:

$107.95 x 500 cwt = $53,975

Commodities are traded based on margin, and the margin changes based on market volatility and the current face value of the contract. To trade a feeder cattle contract on the Chicago Mercantile Exchange (CME) requires a margin of $1,350, which is approximately 3% of the face value.

Calculating a Change in Price
Because commodity contracts are customized, every price movement has its own distinct value. In a feeder cattle contract, a $.0001 cent move is equal to $50. When determining CME's feeder cattle profit and loss figures, you calculate the difference between the contract price and the exit price, and then multiply the result by $5. For example, if prices move from $107.95 to $105.50, you multiply the difference, which is $245, by $5 to yield a contract value change of $1,225.

- Buy Sell Total Value
Feeder Cattle Contract Price
(0.0001 cent move = $5)
$107.95/cwt $105.50/cwt 245 cents or $1,225

Feeder Cattle Exchanges
The futures contract for feeder cattle is traded at the Chicago Mercantile Exchange (CME) and Brazilian Mercantile and Futures Exchange (BM&F).

Facts About Production
Following a gestation period of nine months, a calf is born weighing in the range of 55-100 pounds. After weaning, it is set out to graze for approximately seven to nine months. When a calf meets the minimum weight requirement of at least 650 pounds, it is moved to a feedlot. Weighing anywhere from 650 to 850 pounds, feeder calves are then fattened for an additional three-four months before they are move to a slaughterhouse. The entire process can take just two years.

There is little gender discrimination when it comes to feeder cattle. While a disproportionate number of feeder cattle are steers (castrated bulls), heifers (non-child bearing cows) and cows are also sent to feedlots. Feedlots come in a variety of sizes, with small ones able to handle 100 head of cattle and larger ones capable of handling 50,000.

In the feedlots, feeder cattle are fed a strict diet of corn, sugar beet waste and various grains. All of these foods encourage the cattle to gain weight rapidly, practically doubling their weight within three to four months. This rapid weight gain forces the bodies of the cattle to marble with fat, making them more palatable.

Factors That Influence Feeder Cattle's Price
The price of feeder cattle is influenced by the following factors:
  • Mad cow disease, scientifically known as bovine spongiform encephalopathy (BSE), has had the largest impact on feeder cattle prices. Prior to 1997, meat and bone meal was part of the feed given to cattle during the fattening process, potentially spreading the disease deeper into the livestock food chain than expected. Although feeding bone meal to the cattle has stopped, the danger of the disease is ever-present and has led to stringent rules regarding the age of cattle that can be slaughtered. In order for the U.S. to export beef to Japan, feeder cattle has to be at least 20 months old before slaughter. At one time, the U.S. required that Canadian beef should only reach 30 months before being slaughtered. Experts believe that younger animals are unlikely to have mad cow disease.
  • Grain-fed cattle is considered to be high in saturated fat and is thought to excessively distress the feeder cattle and ultimately have an adverse affect on people who eat beef. A growing trend has been to extend the grass-feeding of cattle beyond the first seven to nine months of life to as long as 20 months. The longer the grazing time, the leaner the beef. It is higher in omega-3 fatty acids and generally more nutritious. In October 2007, the United States Department of Agriculture (USDA) finally settled on a definition for grass-fed cattle, opening the way for the grass-fed cattle industry to compete with traditional feedlots.
  • The USDA established the CME Feeder Cattle Index. It also releases various reports, including the Cattle on Feed report, a monthly publication that reports data on the number of cattle in U.S. feedlots, the number of animals being placed in feedlots, and the number being marketed for slaughter.
The supply and demand of feeder cattle is essential to understanding the growth of the beef industry. The industry itself faces much internal upheaval regarding how cattle is fed and cared for. As the industry develops and grows, consumers could find more varied types and qualities of beef on their tables from all around the world.

Commodities: Gold
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