Until they reach a specific weight, live cattle are specially raised for beef production. This process begins when they are calves and ends when they reach the required weight. Once the goal weight (typically 600-800 pounds), has been reached, they are then transferred to feedlots and are considered “feeder cattle”. In addition to beef production, cattle are used for milk, leather and soap production, and labor.
India raises more cattle than any other country; however, the US and Russia are also major producers of beef. In the US, the seven major cattle producing states are Arizona, California, Colorado, Iowa, Kansas, Nebraska, and Texas. Unlike most grains, cattle are usually consumed in the same country in which they were raised.
When dealing with beef prices, it is important to understand both the supply and demand influences. The factors among the supply side are the production cost (cost of feed and the price of feeder cattle) and weather. The factors among the demand side are personal income, price changes in alternatives meats such as pork and chicken, and population increases. The cattle industry is periodically impacted by Bovine Spongiform Encephalopathy (BSE), also known as Mad Cow Disease. Outbreaks can lead to bans on imports and exports from various countries.
In 1964, the Chicago Mercantile Exchange introduced the first futures contract on a live animal, providing a way to engage in price discovery for the cattle marketplace. Live Cattle futures provide a way to effectively manage the price risk that merchandisers, producers, processors and others have related to the purchase or sale of cattle. In addition, traders can take advantage of the arbitrage and spread opportunities with other related commodities.
The pit Live Cattle futures contract trades on the floor from 9:05 AM CT to 1:00 PM CT, Monday through Friday. The electronic futures contract, on Globex, trades side-by-side with the pit contract. In addition, trades extended hours electronically from 5:00 PM CT to 4:00 PM CT, Monday through Thursday. On Friday afternoon, the electronic futures contract closes at 1:55 PM CT. This early closing coincides with the Cattle on Feed report that is released once a month at 2:00 PM CT.
One Live Cattle futures contract is 40,000 pounds or approximately 18 metric tons. The previous settlement price (June 5, 2012) for August 2012 Live Cattle futures was 119.200 or $47,680 per contract.
The performance bond or initial margin requirement to initiate one futures contract is 3.40% or $1,620 (as of June 5, 2012). To control that futures contract going forward the maintenance margin becomes 2.52% or $1,200 (as of June 5, 2012).
One futures contract price increment is $.00025 per pound. A one “tick” move is $10.00. The next tick after 119.200 upward is 119.225, followed by 119.250. Therefore a one point move, from 119.200 to 120.200, would be $400.
The Daily Price limit is $.03 per pound above or below the previous day’s settlement price. For example, the Daily Price Limit to the upside for the Wednesday, June 6 trading session would be 122.20.
The futures contract month listings are February (G), April (J), June (M), August (Q), October (V), and December (Z).
The futures contract’s Last Trading Date (LTD) is the last business day of the month priced at 12:00 PM CT. The August 2012 Live Cattle futures contract LTD is August 31, 2012 for example. The First Notice Day (FND) for that same contract is August 6, 2012.
Visit our Markets section for additional contract specifications and market information regarding the Live Cattle futures market.