Feeder Cattle Trading Strategy (Backtest and Futures Insight)
The global cattle market is worth hundreds of billions of dollars, as the world consumes over 60 million metric tons of beef annually. Feeder cattle (young cattle mature enough for fattening) contribute a good chunk of that market. Despite the huge market, there are fewer speculators trading cattle compared to other commodities, as many of the participants are industry stakeholders trying to hedge against exposures to risk. If you want to play the feeder cattle market, you will need a robust feeder cattle futures strategy. What is it?
Feeder cattle futures are a financial derivative product that represents a contract to buy or sell a specified number of feeder cattle on a future date, at a pre-agreed price. The contract trades on the CME Globex platform and is financially settled. A feeder cattle futures strategy refers to the methodologies and techniques you can use to profitably trade the market. The strategy includes technical and fundamental analyses required to find entry and exit signals, as well as risk management methods.
In this post, we answer some questions about the feeder cattle futures strategy and we also make a backtest.
What are Feeder Cattle futures?
Feeder cattle refers to weaned calves grazing pasture, which are of sufficient weight and maturity to undergo backgrounding or be fattened in preparation for slaughter. The young cattle are placed on high-energy rations for finishing. Feeder cattle futures make up a huge part of the cattle market, which is why you might want to include it in your watchlist.
Feeder cattle futures refer to a financial derivative product that represents a contract to buy or sell a specified number of feeder cattle on a future date, at a pre-agreed price. The contract trades on the CME Globex platform and is financially settled. Feeder cattle futures are mostly traders by industry stakeholders who use it to hedge their risk exposure in the market, but it also provides traders with an opportunity to profit from speculating on price fluctuations.
What is a Feeder Cattle futures strategy?
A feeder cattle futures strategy refers to the methodologies and techniques you can use to profitably trade the market. The strategy includes technical and fundamental analyses for market timing. It also includes position sizing and other risk management methods.
It is important to have a robust trading strategy if you want to trade futures with any success. The strategy must have precise entry and exit signals and risk management methods.
Feeder Cattle futures strategy backtest
A backtest with strict trading rules, settings, statistics, and historical performance is coming soon.
What is the seasonality of Feeder Cattle futures?
Seasonality refers to the tendency of the price of an asset to move in a particular way during a certain period of the year, which can be months or seasons, such as spring and summer.
The feeder cattle market tends to rise more consistently during the Spring and Summer seasons and perform poorly during the fall and winter seasons.
What moves the Feeder Cattle market — What affects the Feeder Cattle market the most?
Some of the factors that move the feeder cattle market include:
- The global beef demand: When beef demand increases, feeder cattle prices rise as well. On the flip side, a decline in the global demand for beef leads to lower feeder cattle prices.
- Feed prices: When feed prices are low, feeder cattle prices decline, as ranchers are not in a hurry to sell but, instead, keep their feeder cattle to grow to full sizes at a lower cost. On the flip side, rising feed prices cause ranchers to push their feeder cattle to the market, creating a supply surplus and dragging down the price.
Other factors include geopolitical tension and major industry reports, such as the USDA Cattle on Feed Report — a monthly report that outlines the number of cattle and calves on feed, the number of cattle in feedlots, and the number shipped out of feedlots to be slaughtered.
How are Feeder Cattle futures traded?
Feeder cattle futures contracts are traded on the CME Group’s futures exchange, and they can be traded from any part of the world through CME’s Globex electronic platform. The contract trades from Monday to Friday: 8:30 a.m. – 1:05 p.m. CT (9:30 a.m. – 2:05 p.m. ET).
One contract unit is equivalent to 50,000 pounds (~23 metric tons) of feeder cattle. There are monthly contracts (January, March, April, May, August, September, October, and November) listed for 8 months. The contract is financially settled, and trading terminates on the last Thursday of the contract month. In the event that the last Thursday of the contract month is not a business day, trading terminates on the prior Thursday. Trading at Settlement (TAS) also applies.
How do you start trading Feeder Cattle futures?
You can trade the feeder cattle contract through a futures broker, which would grant you access to the CME exchange where the contract is traded. So, you have to register with a futures broker and fund your account if you want to trade.
Some CFD brokers like IG offers feeder cattle contracts that track the feeder cattle futures market. you can trade such CFD of futures contracts if you think you can trust a CFD broker. One good thing about CFDs is that they enable you to trade price fluctuations without having to worry about contract expiry or asset delivery.
What is Feeder Cattle trading at?
As of November 25, 2022, feeder cattle futures were trading at 179.25 US cents per pound. See the chart here on the CME platform chart. The chart was gotten from TradingView.
Note that the price changes from time to time, so what is quoted here may not be the price it is trading now you are reading this post. You can click on any of the links to get the real-time price on the CME platform or directly from TradingView.
What’s Feeder Cattle futures hour?
The trading hours for feeder cattle futures on the CME Globex electronic platform are from Monday to Friday: 8:30 a.m. – 1:05 p.m. CT (9:30 a.m. – 2:05 p.m. ET).
The time schedule for Trading at Settlement (TAS) is slightly different: Monday – Friday 8:30 a.m. – 1:00 p.m. CT (9:30 a.m. – 2:00 p.m. ET).
The schedule for CME ClearPort is Sunday – Friday, 5:00 pm – 4:15 pm CT. There is a 45–minute break each day, Monday to Thursday, beginning at 4:15 pm.
Where can I find trading charts?
You can find the trading chart on any trading platform you are using to trade. If your platform does provide trading charts, you can get charts from a third-party platform, such as MultiCharts. A more common option is TradingView, which offers free access to charts of different instruments once you register. However, you have to subscribe to the Pro services if you want to connect it to your broker, assuming it is one of the brokers supported by the platform. You can also access the TradingView chart for feeder cattle futures via the CME platform.
What are the trading symbols for Feeder Cattle futures?
The trading symbol for the feeder cattle contract is GF. The product codes for the different services are as follows:
- CME Globex: GF
- CME ClearPort: 62
- Clearing: 62
- TAS: GFT
What is the specification for the Feeder Cattle futures contract?
One contract of feeder cattle futures is equivalent to 50,000 pounds (~23 metric tons) of feeder cattle. The price quotation is in U.S. cents per pound, and the minimum price fluctuation is 0.00025 per pound, which is equivalent to $12.50 per contract.
There are monthly contracts (January, March, April, May, August, September, October, and November) listed for 8 months. The contract is financially settled, and trading terminates on the last Thursday of the contract month. But in the event that the last Thursday of the contract month is not a business day, trading terminates on the prior Thursday.
Why should you start trading Feeder Cattle futures?
The feeder cattle futures market is mostly traded by stakeholders in the industry who use it to hedge the risks associated with their businesses. However, as retail traders, the main reason we trade futures is to profit from price fluctuations.
What is the contract size?
One full contract of feeder cattle futures is equivalent to 50,000 pounds. The price of a pound of feeder cattle, as of writing, is 179.25 cents or $1.7925. So, the USD worth of one full contract of feeder cattle futures is 50,000 x $1.7925 = $89,625.
What is the tick size?
The tick size of a full contract of feeder cattle futures is $12.50 per contract.
What is the minimum price fluctuation for Feeder Cattle futures?
The minimum price fluctuation is 0.00025 per pound of feeder cattle.
Are there any ETFs?
There are no ETFs that specifically track the feeder cattle futures market alone, but there is an ETF that tracks the cattle market and a few that track the entire livestock or agricultural commodity market. The most targeted one is iPath Series B Bloomberg Livestock Subindex Total Return ETN (COW). COW tracks the cattle market, including the lean hog market. Thus, it offers an opportunity to gain exposure to hogs and cattle.
What factors affect Feeder Cattle prices?
The key factors that affect feeder cattle prices are global beef demand and feed prices. These are captured in major industry reports, such as the USDA Cattle on Feed Report — a monthly report that outlines the number of cattle and calves on feed, the number of cattle in feedlots, and the number shipped out of feedlots to be slaughtered. Another factor is geopolitical tension that may affect transportation.
What is the all-time high for Feeder Cattle futures?
Based on TradingView’s chart for the feeder cattle futures (GF), the all-time high for feeder cattle futures is 245.20 US cents. This price was reached in October 2014.
What are the biggest risks in trading Feeder Cattle futures?
The biggest risk when trading feeder cattle futures is adverse price movement, which can be disastrous with a leveraged position. Leverage magnifies losses because they are calculated based on the total worth of the contract, and not the margin deposited with the broker. For example, with a 20x leverage, a 5% negative movement would wipe out your account.
Another risk is liquidity, as there are not many retail traders in the feeder cattle market.
What is the settlement method?
The feeder cattle contract is financially settled.
What is the settlement procedure?
The contract is cash settled based upon the CME Feeder Cattle Index price for the seven calendar days ending on the day on which trading terminates. The index price is released one business day after trading in the expiring contract month terminates.
What is the block minimum for Feeder Cattle futures?
50 contracts
What is the difference between Feeder Cattle futures and the CFD instrument for Feeder Cattle?
Feeder cattle futures are standardized contracts and trading on the futures exchange (CME Group) is regulated. Any CFD instrument on feeder cattle offered by an online CFD broker represents a contract with that broker, which may not always act in your best interest. However, futures have expiry dates, but CFDs don’t and can be traded without worrying about rollover.
Which forex instrument is the same as Feeder Cattle futures
Forex and CFD brokers offer commodity CFDs. They offer CFDs on commodity futures. However, only a few offer CFDs on Feeder Cattle futures. It is not common to find a broker that offers CFD trading in Feeder Cattle.
What are some important dates for this market?
Some of the important dates for the feeder cattle futures market include:
- 1971 when feeder cattle futures contracts were introduced
- 1987 when feeder cattle options on futures contracts were introduced
- September 1976 when the market made its all-time low of 36.55 US cents
- October 2014 when the market reached its all-time high of 245.20 US cents
What is the highest Feeder Cattle has ever been — its all-time high?
Based on TradingView’s chart for the feeder cattle futures (GF), the highest price feeder cattle futures ever reached was 245.20 US cents, which happened in October 2014.
What is the lowest Feeder Cattle has ever been — its all-time low?
Based on TradingView’s chart for the feeder cattle futures (GF), the lowest price feeder cattle futures ever reached was 36.55 US cents, which happened in September 1976.
FAQ:
How are Feeder Cattle futures traded, and what are the key contract specifications?
Gain insights into the logistics of trading Feeder Cattle futures, including contract sizes, trading hours, and termination dates. Understand the role of CME Globex and the financial settlement process.
How do you start trading Feeder Cattle futures, and what role does a futures broker play?
Understand the steps involved in starting to trade Feeder Cattle futures, from registering with a futures broker to funding the trading account. Explore the option of trading through CFD brokers like IG.
What are Feeder Cattle futures backtests, and how can they inform trading strategies?
Understand the concept of backtesting Feeder Cattle futures strategies, including trading rules, settings, statistics, and historical performance. Stay tuned for upcoming backtests in the provided content.