Commodities: Feeder Cattle

Cattle have been domesticated for at least 10,000 years. Brought to North America by European settlers in the 1500s, cattle were first used for their skins and tallow. By the 1850s, beef gained in popularity, especially in Northern markets. Today, cattle are raised worldwide and are used for milk, meat, leather and labor.

"Feeder cattle" are weaned calves raised to be between 600-800 pounds. Once a calf reaches the minimum weight, it is sent to a feedlot to be fattened for slaughter. It usually takes about four to five months to transform from feeder cattle to "live cattle," the industry term for fully grown cattle. Live cattle are another commodity that can be traded (see the "Live Cattle" section of this tutorial).

Contract Specifications

Production        

By the early 1800s, population growth in the U.S. triggered the growth of the commercial cattle industry, which took advantage of the Western frontier’s open landscape. The introduction of the refrigerated rail car in the 1860s allowed farmers to transport beef from the West to crowded East Coast markets and helped the industry expand rapidly. Another explosion in growth occurred in the 1950s, following the creation of the federal highway system. Today, the U.S. is the largest producer of beef in the world, followed by Brazil and the European Union (combined, these countries produce about 47% of the world’s beef).

Price Drivers

Like other commodities, the price of cattle is influenced by several factors. Key price drivers include:

• feed prices (hay and corn)
• weather (for example, high temperatures affect livestock’s appetite, which can reduce the weight they gain)
• global demand for beef (tied to income growth)
• substitutes (if beef prices rise, people switch to chicken and pork)
• food-safety concerns (e.g., outbreaks of bovine spongiform encephalopathy – mad cow disease)
• energy prices
• value of the U.S. dollar