Feeder cattle as a commodity refers to cattle of a particular age and weight. They are sometimes also referred to as lean cows. This kind of cattle is usually between the ages of 12 and 18 months and weighs roughly between 650 and 850 pounds. There is little discrimination between the use of the different genders in the case of feeder cattle, as steers, heifers and cows are all used indiscriminately. The animals are sent at this early age to feedlots, where they are fed up until they reach the desired size and weight of market cattle, which is around 1000 to 1300 pounds. These cows are usually mature between 18 and 27 months, but are traded on the commodity exchanges under a different ticker symbol.
On the primary commodity exchange on which they are traded, the Chicago Mercantile Exchange, feeder cattle futures are sold under the ticker code of FC if they are traded on the exchange floor, and GF if they are traded electronically. Feeder cattle futures are delivered yearly in January, March, April, May, August, September, October and November.
The primary feature of appeal to traders in feeder cattle futures contracts is that it allows the traders to manage their price risk more effectively. The number of cattle that are brought into feedlots provides the most accurate estimation of whether there will be a surplus or a deficit of live cattle in the future.
The main business and consumer market for cattle is the food industry, and it is estimated that there are 1.3 billion head of cattle currently being raised worldwide. Beef is available in many different grades for many different uses, such as for food in hospitals, schools and restaurants. Feeder cattle may also be purchased by traders in the leather industry, and products that can be derived from cattle are also used in the manufacture of leather, soap and camera films.
There are several factors to consider when engaging in cattle trading. Cattle future prices can be affected by mad cow disease (bovine spongiform encephalopathy, or BSE), for example, which is perhaps the largest impactor of cattle prices. The disease first came to prominence in 1997 after years of feeding cattle on meat and bone meal in the feedlots. This helped to spread the disease and although feeding methods have changed since the first major outbreak of the disease, it is still a risk and can have a sudden and massive impact on cattle futures.
The method used to feed the cattle also affects the price on the market. Cattle fed with grain are believed to be less healthy than cattle that have been grazed, as the cattle is thought to be distressed in the process. Grazing however is a much longer process, which can lower the number of cattle available for sale at any one time, which may drive the spot price of feeder cattle up. Feeder cattle trading is therefore as fluid a market as live cattle trading, and similar factors can influence the price of both commodities.
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