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.
The interstage between calf and killable cattle is indicated as feeder cattle at the futures exchange markets. The contract size of 50,000 lbs. (= 22.68 tons) matches about 65 young animals.
Feeder cattle are young animals sent to feedlots for finishing into “fed” cattle, the basis of the Chicago Mercantile Exchange’s live cattle futures contracts. The Chicago Mercantile Exchange (CME) added feeder cattle futures to its livestock products in 1971, and in 1987 the exchange added options on futures on this contract. These tools have enabled cattle producers to manage their price risk more effectively.
The calves are separated from their mothers after 6-8 months and a weight of 300-600 lbs. When the animals reach a weight of about 600-800 lbs. a short time after, they are sold for further fattening to farmers as feeder cattle. The mature cattle weighs about 1,200 lbs. 4 to 8 months later and is sold as live cattle to the slaughterhouses.
The CME’s feeder cattle index is a seven-day weighted average of United States Department of Agriculture (USDA) prices from a 12-state region: Colorado, Iowa, Kansas, Missouri, Montana, Nebraska, New Mexico, North Dakota, Oklahoma, South Dakota, Texas, and Wyoming. Medium #1 and Large #1 feeder steers weighing between 700 and 849 lbs. are included in the calculation, except for those identified as fancy, thin, fleshy, gaunt, or full.
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.
Feeder 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 50,000 lbs. (1 lb = 0.453592 kg). 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 under specific circumstances. Speculators can trade feeder cattle futures and options in hopes of profiting from changes in price. Because cattle prices often trend up or down, many individual speculators are attracted to both live cattle and feeder cattle futures.
Most important stock exchange centers: CME
Ticker symbol: FC, at e-commerce Globex: GF, Clearing: 62, Tick-size: 0,025 U.S. Cent per pound (12.50 US$ per contract))
Contract-cycles: March-May, August-November monthly; additional January.
Contract-size: 50,000 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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