On the Chicago Mercantile Exchange, live cattle futures are standardized, exchange-traded contracts (CME). The contracts cover the delivery of full-grown calves that have achieved a weight of between 1,200 and 1,400 pounds and are ready to be delivered to meat processors. Because futures were primarily traded on storable commodities like grain at the time, the introduction of live cattle futures in 1964 was a bold step. Since then, the live cattle futures contract has gone through a number of revisions, each of which has improved the contract’s utility in risk management systems. Cattle producers have been able to better manage their pricing risk thanks to these technologies.
What’s the deal with cattle futures?
“Farmers and ranchers phone in the majority of our customers, and we operate as a middleman to facilitate the transaction,” Varilek added. “We give advise based on prices, the producers’ breakeven points, the risks they face, and the safeguards we can put in place to limit those risks. We tailor a marketing strategy for the individual because not every plan matches every producer.”
Cattle futures contracts, according to Varilek, allow farmers to set a price in advance rather than being at the whim of market conditions at the time of sale. A broker can also assist the producer in determining the best course of action for a small commission on each trade.
What is the difference between feedlot cattle and live cattle?
What is the fundamental difference between live cattle and feeder cattle, many of you may wonder?
Live cattle are cattle that have reached a desirable weight (850-1,000 pounds for heifers and 1,000-1,200 pounds for steers) and are ready to be sold to a packer. Feeder cattle are weaned calves who have recently been put to feedlots (approximately 6-10 months old). The cattle are slaughtered by the packer, who then sells the meat in carcass boxes.
The USDA’s predictions for net exports of US meat and poultry, which are likely to climb again this year from past years, are another short-term bullish reason for fat/live cattle.
What is the basis for Feeder Cattle futures?
Feeder Cattle futures (GF) are young cattle that have grazed on pasture and are between 700 and 899 pounds in weight. These cattle will be placed in a feedlot and fed a specialized grain-based diet for four to six months, or until they reach their maximum frame and weight potential.
What is the definition of live cattle on commodities?
Live cattle futures contracts are a type of futures contract that can be used to hedge and speculate on the price of feed cattle. Trading live cattle futures is a typical aspect of a producer’s price risk management program since it allows cattle producers, feedlot operators, and merchant exporters to hedge future selling prices for cattle. Meat packers and merchant importers, on the other hand, can hedge future cattle purchase prices. Producers and buyers of live cattle can also sign into production and marketing contracts that include futures prices as part of a reference price formula for delivering live animals in cash or spot markets. Businesses who buy beef as an input can also buy live cattle futures contracts to protect themselves from rising meat prices.
What is the difference in price between live and feeder cattle?
The graph for this week emphasizes the relationship between those two markets. Since the market moved through the steep drop of 2015, the price connection has remained surprisingly constant. The CME feeder cattle index has been around $30 ahead of the postponed live cattle contract in recent weeks. To that end, the deferred fed index has averaged $114 over the last four years, while the feeder cattle index has averaged $144.
Inevitably, one of the most frequently asked questions by farmers is, “How do you see feeder prices developing?” The answer inevitably prompts a question on the other side, based on this trend “How do you see fed prices developing?”
Feeder cattle are more expensive than live cattle for what reason?
Feeder cattle and live cattle are the two sorts of cattle that are traded by livestock traders. The stage of the production cycle distinguishes these two commodities.
Weaned calves weighing between 600 and 800 pounds are considered feeder cattle. Feeder cattle are then placed in a feedlot and fed a high-energy feed diet consisting primarily of corn and other grains. Feeder cattle require more than 500 pounds of gain before reaching slaughter weights, therefore corn prices have a significant impact on feeder cattle pricing.
On the other hand, live cattle are ‘finished’ products that are ready to be sold to slaughterhouses.
What weight should my calves be sold at?
“Should I sell light-weight feeder calves now or hold them and sell them when they are heavier?” is a question that is frequently asked in sale barns and during extension programs. The answer to this question is contingent on your specific circumstances. The study must take into account a number of aspects, including future market prices, gain value, gain cost, labor availability, forage and feed situation, and the condition of the brood cows.
Because Florida no longer has a state market reporting system, let’s look at a recent Alabama Livestock Market Report to see how feeder calf market prices compare to feeder steer market pricing of various weights. Table 1 shows the auction market price as of February 24, 2017, as provided by USDA’s Alabama Livestock Market Report. When stated in dollars per pound, the feeder steer pricing beginning with the 300-pound steer calf were the highest, at $1.67/lb. The overall value of a feeder calf grows as the weight increases, while the price per pound drops. The lowest price per pound was reported for the 700-pound feeder steers, at $1.23 per pound, as shown in Table 1. When feeder steer values are represented in dollars per head, however, the 300-pound feeder steer has the lowest value at $501 per head. The 700-pound feeder steer had the highest value at $861 per head. Feeder steer values stated in dollars per head increased as weight increased in last week’s market report ($501, $624, $720, $792, and $861 for the respective weights).
Table 1 contains some additional data that isn’t typically included in market reports. It depicts the price differential for feeder steers sold in Alabama last week, both per pound and per head in 100-pound increments. Surprisingly, the price difference between weight categories per head varies substantially, ranging from $69 to $123 per head. Adding weight will be lucrative for all weight categories if you can gain 100 pounds for less than $69 per head. Because these calves are nursing and grazing on pasture, most cow-calf producers may add weight to 300-pound and 400-pound feeder calves without incurring significant expenditures. Some producers can increase the weight of 500-pound feeder calves for less than the increase in value. Most farmers, however, will pay additional costs to add 100 pounds of gain to 600-pound calves for supplemental feed and after-weaning care. “Can you add 100 pounds for less money than the difference in total worth of the calf?” is the important question to answer. Each additional pound of weight incurs additional charges. You must sell the feeder calves if the additional costs per head to acquire 100 pounds surpass the market price difference per head (added value of gain). Producers should also be aware that the price differential calculated above ($69 to $123 per head for each additional 100 pounds gained) changes according on market conditions. Gain value on 300-400 pound calves is generally higher than gain value on 500-600 pound calves.
To see the pricing disparities when you add weight to various endpoints, start with the light-weight feeder steers. Stocker operators frequently utilize this measurement. For example, the difference in price per pound between 300-pound (base) and 700-pound feeder steers was -$0.44 per pound. The feeder steer price differential from the base was $360 per head ($861 $501) as expressed in dollars per head. According to this, the market valued 400 pounds of extra gain at $361 per head on February 24, 2017. Unfortunately, as different elements of supply and demand influence the market, these values are continuously shifting, so you must examine this as you prepare to market your calves on a regular basis.
The value of weight gain between weight categories can be stated in dollars per pound using the information above. Gain between 300 and 400 pound feeder steers was valued at $1.23 per pound. The price of a pound of growth varied between weight groups, ranging from $0.69 to $1.23. As a result, if you can acquire weight cost less than $0.69 per pound gained, adding weight is a lucrative decision in all weight categories. Similarly, the value of increase from 300-pound feeder steers to each subsequent weight category allows you to assess the value of various endpoints. Per pound of gain, the value of gain from the base ranged from $0.90 to $1.23. You’d sell the 700-pound feeder steer for less than $0.90 if you could increase weight gain for less than $0.90. Please notice that in the cases in Table 1, the value of gain “is not” the same as the market price. When there is no variation in price per pound between different weights of feeder calves, the value of gain per pound “would be equal” to the market price per pound (300 and 400-pound calves would have to sell for the same price per pound).
The calves with the highest value are the heavier calves, according to this spot-market research. “Will it be profitable to add weight and sell heavier feeder calves?” is the issue that every cattle producer must address. You can determine when to bring calves to market by weighing the costs and benefits of each incremental increase of 100 pounds in weight gain. In general, keeping nursing calves with their mothers longer to gain weight is more profitable. However, once the calves have been weaned, you must compare the cost of gain to the present market to make this option.
What influences the price of live cattle?
Market shifts, input costs, weather, and the price of substitute items are all factors that influence livestock supply. A short-term shift in quantity can be caused by a change in market price; as prices rise, a farmer may decide to bring more animals to market to take advantage of lower prices.
What is the average weight of a feeder calf?
Yearlings weighing up to 800 to 900 pounds. Packers like animals weighing between 1,100 and 1,200 pounds, thus the most typical weight of calves kept on feed is between 500 and 700 pounds.