Some products that are traded on commodity exchanges are relative newcomers to the collective consciousness of the public. Others however have been inextricably linked to the development of mankind throughout history. Cattle are a prime example of the latter with livestock having been domesticated for roughly 9000-10000 years. It is perhaps surprising therefore that futures contracts in live cattle only came into use in 1964 at the Chicago Mercantile Exchange. It is important however to make the distinction between the two types of cattle that are traded, namely live cattle and feeder cattle. Although both types are alive, to be considered ‘live cattle’ as a commodity, the cows must be either at the calf stage or anywhere up to around 800 pounds, which usually occurs around the 6-10 month old mark. After this, the cattle would be transferred onto a feedlot, becoming ‘feeder cattle’ as opposed to ‘live cattle’. Live cattle are generally traded on the Chicago Mercantile Exchange (CME) under the ticker symbol of LC, if traded at open outcry, and LE if traded on the Globex electronic platform.
Live cattle futures have several special features as a commodity. Cattle futures generally are an appealing prospect for trade, as the uses for cattle are many and the global demand for products that are created from cattle is high. The cattle market that exists is therefore global and of great importance. Meat is obviously one of the most demanded products creating from cattle, and where ‘live cattle’ differs from ‘feeder cattle’ is the fact that live cattle has been fed a specific kind of high energy foodstuff that ensures the development of meat characteristics that fit in with the general consumer preferences in the U.S. This means that the meat produced should have a substantial market waiting for it, where live cattle prices are appealing to traders, owing to the fact that this commodity adheres to the high standards increasingly expected by the general public. These various factors lead to significant enough demand to make trading in live cattle futures a lucrative prospect.
The main consumer/business markets for live cattle are varied, as at this age the cattle can be subsequently used for a variety of purposes. The main markets for cattle generally reside in the food industry, namely in the production of beef. Cattle of this age may also be raised to produce dairy products, which are equally as sought after worldwide. As well as the food industry, the clothing and textile industries make great use of the leather that can be derived from cattle hides, and this too is a potentially huge market base with which to trade.
India is considered to produce the most head of cattle worldwide, with around 400 million animals. The United States has around a quarter of this, and yet also produces a quarter of the world supply of beef. In the US, the Southern States such as Arizona and Texas are the most prolific producers of cattle.
There are several factors that can have a bearing on cattle futures trading and cattle futures prices. The price of feed for the cattle is an important factor to consider, as rising prices of corn can mean that the cost of rearing cattle can suddenly sky-rocket. If this happens, cattle tend to appear at market at lower weights, negatively affecting cattle trading by resulting in decreasing prices for cattle futures. Similarly, any appearance or perceived appearance of Mad Cow Disease (BSE) can cause demand for cattle to suddenly drop, which will make cattle market prices significantly lower. Conversely however, an increase in demand for products derived from live cattle in the developing world will increase cattle futures prices, making cattle futures trading a much more profitable enterprise.
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