CME Group offers two related futures contracts that provide direct exposure to the U.S. beef cattle market. The Feeder Cattle futures contract (GF) represents weaned male calves grazing on available pasture forage to ensure healthy skeletal or frame development.

Once these young animals, or “feeder cattle,” have developed an adequate frame score, they are then placed into feedlots where they receive a carefully rationed, high-energy diet to grow them to an acceptable finished weight. These finished animals are then sold to a meat packer for processing. During this final stage, finished cattle (also referred to as “fat cattle” or “fed cattle”) are represented by the CME Group Live Cattle futures contract (LE).  

The entire process from pasture to plate can average anywhere from 18-24 months. U.S. beef cattle are raised in all 50 states; however, cow/calf operations producing feeder cattle are centered around areas containing low cost, high quality forage topography. Whereas feedlots producing finished cattle are generally located in regions where a variety of feed grains are readily available.  

The U.S. beef supply will expand and contract with this production cycle which influences price as well as beef imports and exports and consumer demand.

The CME Group Feeder Cattle futures contract (GF) represents 50,000 pounds of steers and trades with a minimum tick increment of $.00025 per pound, or $12.50 per tick. The contract is available Monday – Friday from 8:30 a.m. to 1:05 p.m. Central Time (CT) and is financially settled against the CME Feeder Cattle Index, which is calculated using U.S. Department of Agriculture (USDA) reported auction sale data.

Each CME Group Live Cattle futures contract (LE) represents 40,000 pounds of live steers or heifers and trades with a minimum price fluctuation of $.00025 per pound, or $10 per tick. However, unlike Feeder Cattle futures, the Live Cattle contract is physically delivered at expiration. The delivery process provides the option for carcass delivery at a processing plant or a live-graded delivery at an approved stockyard.  The contract trades Monday – Friday from 8:30 a.m. to 1:05 p.m. Central Time (CT).

Market participants trading cattle monitor reports from the U.S. Department of Agriculture (USDA). One particular report that cattle traders anticipate is the Cattle on Feed Report, which contains information about the total number of cattle and calves on feed, placements, and marketings by class and feedlot capacity.

Market participants also closely analyze reports detailing cattle auctions, harvest numbers, and the supply and prices of boxed beef. To devise a trading strategy, the trader combines USDA reports with information about the weather, exports, imports, corn, and other agricultural feed grains.

Cattle graze on pasture for most of their lives until they are placed into a feedlot where they are fed a diet that can include corn, soybean meal, hay, grass, and wheat, as well as additives to optimize healthy weight gain. Consequently, corn, soybean meal, and wheat prices can dramatically impact the prices of both Feeder Cattle and Live Cattle.

For example, should the cost of corn and other feed rise too high, the producer may choose to sell animals to the market earlier and at a lower weight, which impacts the value on both nearby and back-month cattle contracts.

The size and health of the herd is also sensitive to weather. Unusually hot or cold weather slows the rate at which cattle gain weight, which in turn reduces their finished size. Drought can also have a significant impact on pasture conditions which can drive marketing decisions for producers. Therefore, as with other agricultural products, cattle volumes and prices can be seasonal. Market participants must stay attuned to not only these production factors, but also to breaking news and changes to market structure in the cattle industry. For example, a news report on health related issues could impact global supply and demand patterns for some time to come.

Given the wide array of factors that can influence prices along the supply chain, CME Group benchmarks are available for participants to help manage their risk in the evolving cattle industry.