In this guide to trading feeder cattle, we’ll explain how and where you can trade this popular commodity with a list regulated brokers that are available in your country. We also discuss why some traders choose to trade cattle and consider the risks.
In a hurry? If you want to get started trading on cattle, here are brokers available in to consider:
How To Trade Feeder Cattle
Traders have several ways to get exposure to feeder cattle trading products:
Feeder Cattle Futures
The Chicago Mercantile Exchange (CME) offers a futures contract that settles into 50,000 pounds (23 metric tons) of feeder cattle.
The contract trades globally on the CME Globex electronic trading platform and has eight expiration months: January, March, April, May, August, September, October, and November.
Futures are a derivative instrument through which traders make leveraged bets on commodity prices. If prices decline, traders must deposit additional margin in order to maintain their positions.
At expiration, feeder cattle contracts are financially settled.
Trading futures requires a high level of sophistication since factors such as storage costs and interest rates affect pricing.
Feeder Cattle Options on Futures
The CME offers an options contract on feeder cattle futures. Options are also a derivative instrument that employs leverage to trade commodities.
As with futures, options have an expiration date. However, options also have a strike price, which is the price above which the option finishes in the money.
Options buyers pay a price known as a premium to purchase contracts.
An options bet succeeds only if the price of feeder cattle futures rises above the strike price by an amount greater than the premium paid for the contract.
Therefore, options traders must be right about the size and timing of the move in feeder cattle futures to profit from their trades.
Feeder Cattle ETFs
These financial instruments trade as shares on exchanges in the same way that stocks do.
While there is no ETF that specifically cover feeder cattle prices, there are three ETFs that trade in general livestock:
|iPath Bloomberg Livestock Total Return||E-TRACS UBS Bloomberg Livestock Commodity Total Return||iPath Pure Beta Livestock ETN|
Shares of Feeder Cattle Companies
It is impossible to get pure-play exposure to feeder cattle prices through the equity market. Most ranches that raise feeder cattle are privately owned.
Traders seeking exposure are better off looking to ETFs that trade futures than to equities or stocks.
Contracts for Difference (CFDs)
A popular way to trade in feeder cattle is through the use of a contract for difference (CFD) derivative instrument. CFDs allow traders to speculate on the price of feeder cattle.
The value of a CFD is the difference between the price of feeder cattle at the time of purchase and its current price.
Many regulated brokers worldwide offer CFDs on feeder cattle. Customers deposit funds with the broker, which serve as margin. The advantage of CFDs is that traders can have exposure to feeder cattle prices without having to purchase shares, ETFs, futures or options.
Regulated Brokers: Where Can I Trade Agriculture Commodities?
Start your research with reviews of these regulated brokers available in .
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. <b>Between 71.00%-89.00% of retail investor accounts lose money when trading CFDs.</b> You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Reasons to Trade Feeder Cattle Instruments
Buying feeder cattle can be a great addition to a trading portfolio for the following reasons:
- Bet on Global Growth
- Inflation Hedge
- Portfolio Diversification
Important: This is not investment advice. We present a number of common arguments for and against investing in this commodity. Please seek professional advice before making investment decisions.
Bet on Global Growth
Growth in the global economy might be the best reason to trade feeder cattle instruments.
As emerging economies expand, their appetite for animal proteins including beef is likely to continue to increase.
Buying feeder cattle is a bet on continued solid growth from emerging market countries.
Trading feeder cattle is a way to hedge against the loss of purchasing power from inflation. Livestock is certain to become more expensive if the world economy starts to overheat.
Easy money policies from the Federal Reserve and other central banks have kept global interest rates low and created speculation in many different asset classes.
At some point this speculation could show up in food markets such as feeder cattle, particularly if there is a global food shortage. A weak dollar, in particular, could signal inflation and higher feeder cattle prices.
Trading feeder cattle might be a way to diversify a portion of a portfolio out of stocks and bonds and into commodities.
Risks Of Betting On Feeder Cattle Prices
Traders should also consider these risks of trading feeder cattle:
- An emerging market slowdown could seriously limit demand for beef
- Trends toward healthier living are creating negative perceptions about beef consumption
- Beef production is heavily energy-intensive. Environmental concerns and the green energy movement have created negative publicity for the beef industry
If you’d like to find out more about how feeder cattle are produced and what role they play in the global economy, see our in-depth look at Feeder Cattle as a Commodity.
Learn more about other Agricultural Commodities and see other anima-related commodity guides on:
- Live Cattle: How Does Cattle Trade Impact The Global Economy?
- Lean Hogs: What Are Lean Hogs Primarily Used For?
- Pork Belly: Is Pork Belly A Valuable Commodity?