Live Cattle Trading Guide: How to Trade Live Cattle CFDs

Live Cattle (LE) can offer trading opportunities for those wanting exposure to the beef industry. Let's take a closer look at what live cattle is, at the factors influencing its prices and how to trade live cattle with Contracts For Difference (CFDs):

TL;DR

• Live cattle are a type of livestock raised primarily for beef meat production.
• Futures contracts on live cattle are traded on the Chicago Mercantile Exchange (CME).
• The United States, Brazil, and China were the three largest beef-producing countries (in 2023/2024).
• Disease, weather, consumer preferences, input costs, transportation, and the value of the USD are some factors that influence live cattle prices.
• One way to trade live cattle futures over the short term is with a CFD provider like Plus500.
• You may use techniques such as day trading, swing trading and position trading.

What Are Live Cattle Futures?

Dominating the U.S. livestock futures market, live cattle contracts represent the delivery of cattle primed for slaughter and processing. Future contracts on live cattle represent agreements to buy or sell a specified quantity of beef cattle at a predetermined price on a future date.

What Are the Main Uses of Live Cattle?

Cattle producers primarily raise cattle for their meat, but these animals also yield a variety of valuable byproducts. These byproducts are used in a wide range of industries and products, contributing to the overall economic value of cattle production.

Oleo oil and oleo stearin, extracted from beef fat, are used in food manufacturing. Beef bones and trimmings are used to make stock. Gelatin, derived from cattle bones and skins, is a versatile ingredient in food, pharmaceuticals, and cosmetics.

Beef fats and fatty acids can be used in the production of chemicals, pesticides, detergents, and beauty products. Cattle hides are a valuable source of leather used in clothing, footwear, and other goods. Bones, horns, and hooves can make items like piano keys.

Livestock: Live Cattle vs Feeder Cattle

In the global livestock industry, cattle futures contracts are traded in two primary categories: Live Cattle and Feeder Cattle (GF).

Feeder Cattle contracts relate to younger cattle, generally weighing between 600 to 800 pounds. These cattle are still in the fattening phase and require additional feed and care to reach slaughter weight. Once they grow to a range of 1,100 to 1,400 pounds, they are considered Live Cattle instead of Feeder Cattle.

Live Cattle contracts involve cattle that have reached their optimal weight and are ready for slaughter and processing. These cattle are usually sent to feedlots for final preparation before being processed into beef.

The contract sizes for these two types of cattle differ: Live Cattle contracts cover 40,000 pounds, while Feeder Cattle contracts cover 50,000 pounds. Despite this difference, both contracts are priced in cents per pound.

A key distinction between the two lies in their delivery options. Live Cattle contracts allow for physical delivery, meaning the buyer can take possession of the actual cattle. In contrast, Feeder Cattle contracts are settled in cash, requiring the buyer to pay the difference between the contract price and the settlement price.

Which Countries Are the Largest Live Cattle Producers?

As of the 2023/2024 production season, the United States, Brazil, China and the European Union are the top beef-producing countries, totaling more than 50% of the global production. India, Argentina, Australia, Mexico, Russia and China come next.

What Are the Main Price Drivers of Live Cattle?

Here are some of live cattle's price drivers:

• Harsh winter conditions can reduce herd health, limit market deliveries, and ultimately lead to higher cattle futures prices due to decreased supply.
• The onset of disease can significantly disrupt the cattle market by reducing the supply of healthy animals, leading to higher prices and potential shortages.
• The demand for beef can be influenced by a variety of economic and societal factors, including income levels, the price of protein alternatives, population changes, and dietary shifts.
• Fluctuations in input costs, like feed prices (Corn (ZC), Oats (ZO), sorghum, barley), hay, and fertiliser can directly affect the price of beef.
• The cost of transporting livestock to market by truck or rail, influenced by fuel prices, distances, and transported volumes, can impact beef prices.
• Live cattle futures prices are denominated in U.S. dollars (USD), which means that they are inherently sensitive to fluctuations in the USD's value on the Forex market.

Pros and Cons of Trading Live Cattle with CFDs

CFDs (Contracts for Difference) are financial instruments that traders can use to speculate on an asset's price fluctuation without owning the asset. It is possible to use both long and short positions.

In addition to being able to trade in different market conditions, trading commodities with CFDs can offer other potential advantages. You are not bearing any storage or transportation costs because there is no delivery. CFD providers like Plus500 also provide a way to diversify your portfolio with other asset classes such as Forex, shares, indices, ETFs and options, whose availability depends on your location.

Of course, trading live cattle with CFD is also risky.

CFDs offer leverage, meaning your potential profits and losses can be amplified. If your account equity falls below the maintenance margin level set by your CFD provider when the market moves against you, you could receive a margin call. This usually means that you need to deposit more funds to keep your losing positions open or close them at a loss.

Why Trade Live Cattle with CFDs?

Here are some advantages of trading live cattle with CFD:

• Speculating activity surrounding the live cattle market could provide an interesting trading opportunity for traders wanting to diversify their short-term portfolios beyond classic asset classes.
• Live cattle with CFDs could be one of the options to trade commodities other than CFDs on the most traded commodities like Gold (XAU), Copper (HG), Brent Oil (EB) or Natural Gas (NG).
• Live cattle can offer producers and consumers in the beef industry a valuable hedging tool for managing risk. The increased trading activity can also potentially benefit traders with increased liquidity.
• CFDs allow trading in both bullish and bearish markets.

What Are the Risks of Trading Live Cattle?

While trading Live Cattle with CFDs can provide some advantages, it can also be quite risky:

• Commodity prices can be rather volatile due to speculation, which suggests that live cattle trading can be risky.
• The leveraged nature of CFDs can amplify the impact of volatility in the live cattle commodity market, posing a significant risk of loss to traders. That's why traders should understand what risk management is and how to integrate it into their trading strategy.
• Futures and CFDs can be complex financial derivatives to be understood by beginner traders.
• Gathering and analysing the necessary data to understand the live cattle market and its trends can be challenging and time-consuming.

How to Trade Live Cattle with CFDs on Plus500

1. Create a Plus500 trading account.
2. Fund your account using your preferred payment method.
3. Use the search bar to find live cattle CFDs on the Plus500 trading platform.
4. Analyse the market according to your commodity trading strategy to decide whether to buy or sell the commodity on Plus500.
5. Open your trading position on live cattle based on your trading plan.
6. Protect your position with risk management tools.
7. Monitor your position.

Now that you have a clearer understanding of the live cattle market, you may trade live cattle CFDs with Plus500.