CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. Between 74-89% of retail investor accounts lose money when trading CFDs. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Between 54-87% of retail CFD accounts lose money. Based on 69 brokers who display this data. *Availability subject to regulation.
Cattle are members of the bovinae family. They are raised as livestock, dairy animals, and draft animals, providing us with meat such as beef, milk, and other products such as leather. For the purposes of this article, when using the term ‘live cattle’ it means the trading of cattle on the stock exchange as a commodity.
More than 10,000 years ago, a group of large, wild cattle, known as aurochs, were domesticated, resulting in zebu cattle in the Indian subcontinent, and taurine cattle across Eurasia. The latter orginated in Southwest Asia from just a small group of female aurochs. This domestication has allowed cattle to be used as a food source and for labour, to carry and pull loads. Over the years, repeated and deliberate breeding has produced the varieties of cattle that are found around the world today. The estimated global population of cattle was 988.6 million in 2016.
Countries with the largest beef and veal production 2016 – Statista.com
Country – Metric tons
1. United States – 11,389,000
2. Brazil – 9,284,000
3. European Union – 7,850,000
4. China – 6,900,000
5. India – 4,250,000 *
6. Argentina – 2,600,000
*The reason for the relatively low meat production figures in India in comparison to their vast cattle population is due to the fact that the cow is considered a sacred animal, and many in the region therefore do not eat the meat produced from a cow.
Live cattle can be traded via futures contracts. With these contracts a buyer has an obligation to take delivery of a specified quantity of live cattle on a future date at an agreed price.
Live cattle futures contracts have been traded on the Chicago Mercantile Exchange (CME) since 1964. CME Live cattle futures are traded in lot sizes of 40,000 pounds, or 18 metric tons, with the open outcry ticker symbol of LC. Electronic futures are provided by CME Globex under the ticker symbol of LE. Delivery of the stock is rarely taken by traders, as their positions are closed before the end of the contract.
Consumers and producers of live cattle can manage price risk with live cattle futures. This can be employed by short hedging – which covers the risk of the price of cattle going down, or long hedging which covers the risk of increasing prices in live cattle. Futures are also traded by speculators who assume the price risk that hedgers are trying to avoid in order to try and benefit from price movements.
Another way to trade live cattle is through contracts for difference (CFDs). CFDs speculate on the price of live cattle futures, and are purchased in contracts rather than live cattle lots. For example, with regulated broker, IG, a minimum contract size of 0.5 contracts, with a margin requirement of 2%, and the value of one pip at USD 4 would require a margin of $4.27 to open a live cattle trade (10680 * 0.5 * 4 * 0.02% = $4.27). Note – live price taken from IG 27/08/2017.
The price of live cattle is influenced by various factors. Some of which are mentioned below:
Rearing cattle is bad for the environment as it contributes at least 18% of greenhouse gas emissions with methane being the primary pollutant.
Diseases such as Bovine spongiform encephalopathy (BSE – or Mad Cow Disease) can wipe out entire herds. Outbreaks like these have led countries to ban imports and exports of cattle making the price on the exchange swing greatly.
Price of feed. If traders are wishing to invest in this commodity then attention must be paid to the price of feed stocks as this will affect the prices for live cattle trading as a commodity.
Live cattle prices may be affected by the weather. For example, if long hot spells result in drought, this could affect production and output in the industry.
To trade on live cattle markets it is vital to understand factors affecting the cattle industry as a whole, including how the cattle are fed and cared for. Closely watching not only cattle prices, but also the market prices of the food that cattle eat (corn, wheat, soybeans etc.), and all other factors that affect production of beef, veal, milk and other live cattle outputs, will equip the trader with necessary information for speculating on market prices.