Live
Cattle Futures Price
The live cattle
futures price is different than the live cattle price in the cash (physical) market. Generally, the price of a commodity for
future delivery is higher than the cash price due to carrying costs (insurance, interest, and warehousing fees). This is called
contango. The opposite of contango is backwardation. Backwardation is when the price of
a commodity for future delivery is lower than the cash price Backwardation is normal in a “seller’s market.”
When you trade live cattle futures, your futures price depends on where you get into
the market. After you post your initial margin, your profit or loss depends on where you enter and exit the market (minus
transaction costs).
For example:
The contract size for live cattle is 40,000 Lbs. So each $.01 move equals $400.
As the market moves your account value adjusts. If your account value drops below the maintenance margin, a margin call is
due. A margin call can be met by offsetting positions or adding money to your account.
Trading futures is like driving a car without insurance. You save the insurance premium,
but if you crash you will wish that you were insured. If you have very deep pockets or deal with the physical live cattle
product then futures may be for you. If you are a speculator with a limited amount of risk capital then live cattle options
are a better way for you to invest in the live cattle market.
Click here to view the current futures price of live cattle.
