Cattle futures are part of the livestock futures category. Just as with any other futures contract, cattle futures contracts are legally binding agreements between the buyer and seller, to take and make delivery of cattle.
There are many different types of livestock futures contracts that is traded which have significant enough volumes so that you can day trade the cattle futures contracts with relative ease.
These futures contracts are all standardized contracts with the cattle futures amounts being negotiated at a futures exchange such as the CME group or electronically negotiated and settled on the Globex platform. Cattle futures before all else started trading at the Chicago Mercantile Exchange in 1964 and have a long history in the futures stores.
Cattle futures are popular due to the fact that cattle have many uses from milk and meat to commercial uses such as leather and labor. The major participants of cattle futures are primarily hedgers who are very likely involved in a business related to livestock such as ranchers, manufacturing industries in leather and other similar sectors.
Although dominated by hedgers, speculators and intraday futures traders can trade cattle futures, but it is essential to close the futures contracts to avoid taking delivery of the livestock. Of course this is quite rare in this day and age as your futures broker will most likely inform you about closing out your long or short positions on the futures contracts that you might hold before the contract expiry date.
Before you begin trading cattle futures, there are slightly five things you must know.
- Types of cattle futures contracts
- Cattle futures contract specifications
- How are cattle futures contracts priced?
- Fundamentals governing the cattle futures amounts
- The USDA’s monthly Cattle on Feed report
#1 – Types of cattle futures contracts
Cattle futures contracts come in two main categories or contract types.
- Live Cattle
- Feeder Cattle
The difference between the two sub sectors is the age and weight of the underlying (cattle).
Live cattle category is made up of cows from the calf stage and up to 600 – 800 pounds with about 6 – 10 months for the calf to grow to the estimated weight group. Cows above this age and weight group are designated into the Feeder cattle category. The feeder cattle are fed with the goal of gaining weight before processing.
The feeder cattle must be mature enough to be fattened and it takes usually 3 to 4 months for this process. Corn is one of the main foods used to fatten the cattle and therefore corn amounts also have an indirect impact on the cost of feeder cattle.
#2 – Cattle futures contract specifications
The contract size for the cattle futures are 40,000 pounds or 50,000 pounds respectively and priced in cents per pound and almost representing 35 head, of cattle. The tick size is $0.00025 per pound or $10 per contract for Live Cattle and $12.50 per contract for Feeder Cattle.
The Live cattle contracts come with physical delivery while Feeder cattle is settled for cash. Both the cattle futures contracts have different contract months.
The table underneath gives a summary of the Live and Feeder cattle contracts.
|Live Cattle||Feeder Cattle|
|Contract Size||40,000 pounds||50,000 pounds|
|Price Unit||Cents per 100 pounds||Cents per 100 pounds|
|Min. Tick Size||0.025 ($10 per tick)||0.025 ($12.50)|
|Contract Months||Feb (G), Apr (J), Jun (M), Aug (Q), Oct (V), Dec (Z)||Jan (F), Mar (H), Apr (J), May (K), Aug (Q), Sep (U), Oct (V), Nov (X)|
As with any futures contracts, trading cattle futures contracts also requires an initial performance bond followed by maintenance margin. This can vary from one futures brokerage to another, but on average, the initial margin required is around $1225 for Globex Feeder cattle and about $825 for Globex Live cattle.
#3 – How are cattle futures contracts priced?
Live Cattle 1 Minute Chart
The prices for cows futures is somewhat confusing to comprehend since it’s perhaps not quite as straightforward as state trading crude petroleum or gold stocks.
The cost that you see on the cows futures graphs is for a pound basis, priced in pennies; meaning that the existing cost of 110.300 at Live cattle futures graph is 110.300 pennies (roughly $1.10300)
Thereforea minimum movement of $0.00025 equates to 110.325 pennies. In the graph, this will be exhibited in 110.325.
So in the event you bought one contract at Live cattle futuresand cost transferred from 110.300 into 110.325, this is clearly a 0.025 tick movement with each tick coming in at $10 a contract, then which contributes to $10 benefit.
Number 4 – Fundamentals of trading cattle futures
The largest cows production countries on the planet comprise India, Brazil and China that united is projected to have approximately 300 million cows, followed by Africa (200 million). The United States accounts for almost 25 percent of earth ‘s steak production despite representing only 10 percent of earth ‘s cows.
When trading cattle futures , it’s crucial to comprehend the principles accountable for shaping the store opinion and so amounts. The cows futures amounts might be prone to various facets. A number of those include diseases like mad cow that you could have already been aware about. Below are some factors to keep in your mind once you day trade cows futures.
Environmental effect: The United Nations states that cows farming donate to slightly 18 percent of greenhouse gas emissions using methane function as the key pollutant. The gas manufactured from the gastrointestinal tract of this cows is supposedly worse compared to co2.
Diseases: Cattle frequently see phases of contagious diseases and outbreaks, even together with angry cow being probably the very wellknown. The technical term for this particular disorder is known as Bovine Spongiform encephalopathy (BSE) using frequent outbreaks resulting to prohibit on exports and imports by the affected regions in addition to states. As an instance in the height of the mad cow disease, Japan that is a massive importer of U.S. steak had inadvertently set a ban but later lifted the ban although enforced significant restrictions.
Imports and exportsAlthough the US produces 25 percent of earth ‘s beef, it’s still a net importer of the product or service. Imported beef is largely employed as ground beef and also the imports may be impacted by various things like buying power, inflation or dietary customs.
Weather: Weather also is a massive store mover from the cattle futures contract. High temperatures not kill the cows but may make it problematic for the cows to put on weight. Extreme climate conditions needless to say may mess wreak havoc on cows and interrupts the long-term production.
USDA Projects Brazilian Exports
#5 – The USDA Cattle on Feed Report
The United States Department of Agriculture releases a monthly report called the Cattle on Feed Report, which is an important report that cattle futures traders should follow. The monthly publication reports data on,
- the number of cattle in the U.S. feedlots,
- the number of cattle being placed in the feedlots and
- the cattle being marketed for slaughter.
The report is released every third Friday of the month at 3 p.m. Eastern Time and covers the period for the beginning of the month. The report is published by a survey from the USDA’s National Agricultural Statistics Service (NASS) and covers 17 states which almost represent 98% of all the cattle on feed in the United States.
The USDA’s report has a strong influence on the cattle futures contract amounts, including both live and feeder cattle. Therefore, if you want to trade cattle futures, mind the date and also pay attention to the data that is published.
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The typical store response to the USDA’s report is the actual versus the estimates.
The higher the reported cattle on feed number relative to the estimates, the store sentiment is bearish, while if the reported cattle on feed number relative to the estimates in smaller than expected, it is bullish for the cattle futures contract amounts.
USDA Cattle on Feed Table
The image above provides a picture of this dining table by the USDA’s Cattle on Feed Report. You are able to access the most recent reports out of this connection with writings going all of the way back to 1940’s.
Number 6 – The Hillary Clinton – Cattle Futures controversy
In a widely researched news event, it came to light which Hillary Clinton in 1978 and using an yearly income of $25,000 made significant quantities of currency trading cows. The controversy stems from the very fact Ms Clinton were able to trade 10 cows futures with just $1, 000 within her accounts at the moment.
At a very margin of 1225, trading 10 contracts needs an overall whole preliminary margin of $12000 besides being forced to accounts fully for its upkeep allowance. There in lays the controversy regarding the way Hillary Clinton were able to obtain a way and ended up earning roughly $100,000 without needing enough capital to pay both the expense and requirements of trading cattle futures .
Some call it a “success” however, the details remain cloudy.
It was stated her before all else cows futures trade proved to be a brief sale for 10 contracts in a cost of 57.55 pennies a pound and 24 hours after she locked the contracts out at 56.10 pennies building a benefit of $5,300. Ten months after, her futures account up was 99,541, that had been roughly 10,000 per cent yield on her preliminary investment. Her victory from cows futures put her into a league which of those mythical George Soros.
However, within a media conference many decades after, Mrs. Clinton credited her success to her adviser James Blair who had been legal counsel for Tyson Foods Inc.
When Washington issued a study to Clinton’s futures records, Leo Melamed the prior chairman of the Chicago Merchantile Exchange and Jack Sandner the existing chairman failed to find everything intermittent hope needless to say trading insufficient margin together with Melamed famously calling it “tempest in a teapot,” imagining that anybody might have done also.
Whether Mrs. Clinton traded by herself with aid of a “very good” investment adviser the major take away is the fact that while cows futures contract are insecure contracts to trade, there’s possibility to earn big income.
Trading Cattle stocks provides day traders the capability to create huge quantities of money, however it can include the probability of cost volatility. But when you take a close look at the benefit potential, cattle futuresbe it live cows or feeder cattle futures definitely provide bang for that dollar. By focusing on the principles and employing several technical analysis, intraday futures traders may absolutely consider making consistent benefits trading cattle futures.