Live cattle are cattle that have grown to the requisite weight for slaughter. Cattle are considered to be suitable for slaughter when they reach a weight of about 1100 to 1400 pounds, and this normally takes about six to ten months. Live cattle futures contracts are widely traded on the commodity exchanges in the US and Brazil.

Live cattle futures are futures contracts that track the price of live cattle. It trades on the CME, and is one of the best ways for traders and hedgers to access the live cattle market. 

Trading in live cattle futures started on the Chicago Mercantile Exchange (CME) in 1964 and has been an important part of the trillion-dollar global beef market, which has created millions of jobs in supply, distribution, and retailing. Apart from the economic impact, live cattle are an important commodity because they are a major food source — the beef and other beef-related products we consume come from live cattle.

Live Cattle Futures Contract Specifications
Symbol
LC (LE)
Exchange
CME
Tick Size
$10
Point Value
$400
Contract Size
40,000 pounds, which is around 18 metric tons)
Contract Months
February (G), April (J), June (M), August (Q), October (V) & December (Z)
Trading Hours
Monday 9:05 a.m. Central Time/CT-Opening. At 4:00 p.m. CT on Monday- Thursday, the markets halt and restart at 8:00 a.m. CT on the next morning. Friday 1:55 p.m. CT-Close
Settlement
Deliverable
Last Trade Date
Last business day of the contract month, at 12:00 p.m.

Uses of Live Cattle

There are many uses for live cattle apart from beef production, which is why the futures contract is heavily traded on the commodity exchanges. Here are some of the uses of live cattle:

Beef production: Cattle are raised to mainly produce beef, which is a major source of protein in our diets.

Edible by-products of beef production: There are many edible by-products of beef production, such as liver, kidney, brain, tongue, and tripe. In addition, the gelatin from the bone and skin are used in making marshmallows and ice cream, while the oleo oil and oleo stearin are used to make margarine and candies respectively.

Diary: Milk, yogurt, cheese, and other dairy products are produced from certain breeds of cattle, such as the Holstein-Friesian.

Hides: These can be used to make leather products, brushes, footballs, binders for plaster, certain textiles, and base for insulation material.

Beef fats: The fats in beef can be used to make soaps, detergents, skin creams, lubricants, and pesticides.

Bones and hones: The bones, hooves, and horns of cattle can be processed and used to make things, like piano keys, fertilizers, glues, and buttons.

The Largest Producers and Consumers of Live Cattle

Cattle are raised in almost all parts of the world, and they are primarily reared for meat production. According to the United States Department of Agriculture (USDA), the largest producers of beef and veal meat include the United States, Brazil, the European Union, China, India, Argentina, Mexico, Pakistan, Turkey, and Russia.

In terms of beef and veal meat consumption, the US tops the list, and it is followed by China, Brazil, and the EU-27. Other large consumers of beef are India, Argentina, Mexico, Russia, Pakistan, Turkey, Japan, South Africa, and Canada.

Trades in live cattle are usually done through futures contracts.

Why Trade Live Cattle Futures Contracts?

Trading Live Cattle Futures

Trading Live Cattle Futures

There are many reasons to trade agricultural futures contracts, especially the live cattle futures, and these are some of them:

Increasing demand: As the global economy grows, meat consumption is likely to increase. This is especially true for the emerging market countries in Asia, Latin America, and Africa due to their increasing population. Two of the emerging economies, China and Brazil, are among the top three beef-consuming nations in the world. If the economy of these countries continues to grow, the demand for beef is likely to rise, making live cattle trading more attractive.

Diversifying your portfolio: Live cattle trading offers a great opportunity to diversify a portion of your stock or bond investments to commodities. Diversification helps you spread your risk exposure across many asset classes so as to minimize the effects of systemic risk.

Hedging against inflation: With the way central banks lower interest rates and print more money, the purchasing power of fiat money often diminishes due to rising inflation. Just like most commodities, live cattle are inherently valuable, and it appreciates in value when inflation rises.

How to Play the Live Cattle Futures Market

Although there are other ways to play the live cattle market, such as live cattle options on futures, live cattle ETFs, and live cattle CFDs, live cattle futures contracts offer the best method of trading the market. The futures contract is offered on the Chicago Mercantile Exchange (CME) and can be traded from any part of the world via the CME Globex electronic trading platform.

A live cattle futures contract is equivalent to 40,000 pounds or 18 metric tons of live cattle, and the listed expiration months are February, April, June, August, October, and December. At expiration, the contract is settled by physical delivery. To prevent taking or making a delivery of the commodity, a trader can roll over to the next expiration month.

In addition to the CME and its electronic platform, live cattle futures trade on the Brazilian Mercantile and Futures Exchange (BMF). Futures contracts are leveraged instruments, which can help you maximize profits if you know what you are doing, and you only need to deposit the initial margin to carry a full contract.

Live Cattle Trading Strategies

Live Cattle Trading Strategy

Live Cattle Trading Strategy

The live cattle futures market may not be the most traded futures contract, but it certainly is possible to build trading strategies that trade the market successfully. And if you are lucky to find something like the trading strategy above, then it will blend nicely with your other trading strategies and help with reducing the risk of the portfolio!

If you want to find trading ideas that will help you build trading strategies in various markets, then we recommend that you have a look at our edge membership!

Factors Affecting Live Cattle Prices

Factors That Affect Live Cattle Futures

Factors That Affect Live Cattle Futures

There are a lot of factors that affect the price of live cattle futures contracts, and these are some of them:

The demand for beef: Since live cattle are grown primarily for beef production, it makes sense that the demand for beef will affect live cattle prices. When there is a higher demand for beef, live cattle prices increase and when beef demand is low, live cattle prices decline.

USDA’s Cattle on Feed Report: This is a monthly report that outlines the number of cattle and calves on feed, the number of cattle in feedlots, and the number shipped out of feedlots to be slaughtered.

The price of feed: Feed prices are inversely related to live cattle prices. When feed prices are high, ranchers push their cattle to the market prematurely, creating surplus supply and a decline in live cattle prices.

Cattle Feeding Spreads: Live cattle traders often trade the correlation between live cattle prices, feeder cattle prices, and corns (feed) prices. An example of these spreads is the cattle crush, where the trader expects a positive correlation between live cattle and feeder cattle prices.

Live Cattle Futures Seasonality

Here is a chart that shows the seasonal effects on the live cattle futures market:

Live Cattle Futures (LC) Seasonal Chart

Live Cattle Futures Seasonality

Source

Conclusion

Although live cattle are used for beef production, there are other useful by-products that are gotten from them. Trading live cattle futures contracts is the best way to play the live cattle market. The contracts can be traded on the CME and its electronic trading platform, as well as on the Brazilian Mercantile and Futures Exchange (BMF).

You can find more info about futures market here.

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