The livestock farming raw material products belong to the group of agricultural commodities. At the trading of cattle it is differenced between feeder cattle and live cattle.
Live cattle are killable animals which can be used for meat-production immediately. The average of the cattle’s weight is 1,200 lbs. (= 544 kg). The contract-size is about 30 to 40 animals.
Livestock producers face a great deal of risk. One is uncertain weather, which affects feed costs (like corn, cereals), the availability of feed and forage, rates of gain, conception rates, survivability of young animals, and shipment. All these components affect the price of a futures contract. Another risk (and one more component which can affect the contract-price) is the constant threat of disease and animal epidemics (such as BSE, hog cholera, bird flue), which impinge not only on the affected meat-group, but also create a mutual substitution effect on all kinds of meat. Livestock producers know that staying on top of animal health requires the best management in agriculture. Producers have managed such production risk with top-notch husbandry practices. But no amount of husbandry can address market risk – the uncertainty of prices at market time, owing to shifting supply and demand factors. That’s where the futures market comes in.
The Chicago Mercantile Exchange (CME) 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.
Biggest producers as well as biggest consumers of beef are the U.S.A. Next are the EU-countries, Brazil and China.
Live cattle futures are traded at the Chicago Mercantile Exchange (CME). The quotation takes place in U.S. Cent per American pound (lb.), whereby a contract comprises 40,000 lbs. The daily price-fluctuations are provided with a limit of 3 Cents – upwards as well as downwards – in comparison to the closing call from the day before. The stock exchange can expand the margin when the limit is reached on two successive days. Speculators can trade cattle futures in hopes of profiting from changes in the price of cattle. In fact, because cattle prices often trend up or down, many individual speculators are attracted to cattle futures.
Most important stock exchange centers: CME
Ticker symbol: LC, at e-commerce: LE, Clearing: 48, Tick-size: 0.025 U.S. Cent per pound (10 US$ per contract)
Contract-cycles: every second month, beginning in February.
Contract-size: 40,000 lbs.
Trading hours: Pit (“open outcry”) and e-commerce Globex: Monday to Friday, 9.05 a.m. – 1.00 p.m. Chicago time (CT).
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