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 U.S. and Russia are also major producers of beef. In the U.S., 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 futures contract trades on Globex, the CME Group’s electronic exchange. The market opens at 8:30 AM CT and closes at 1:05 PM CT, Monday through Friday. There are periodic Cattle on Feed reports that are released typically Friday’s 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 most common contract symbol is LE.
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 price move from 119.200 to 120.200 is $400.
The performance bond or initial margin requirement to initiate one futures contract is $1,980 (as of November 11, 2015). To control that futures contract going forward the maintenance margin becomes $1,800 (as of November 11, 2015).
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 daily limit price is $0.045 if the market once again closes at the limit.
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 Day (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.
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