Live Cattle Futures Strategy (Backtest And Example)

Last Updated on December 12, 2022

With the global cattle market worth hundreds of billions of dollars and a huge chunk of that are traded via the futures market, live cattle futures offer a huge market for traders. However, there are fewer speculators trading cattle compared to other commodities, as many of the participants in the live cattle futures market are industry stakeholders trying to hedge against exposures to risk. But if you want to play the live cattle market, you will need a robust live cattle futures strategy.

A live cattle futures strategy refers to the methodologies and techniques you can use to profitably trade the live cattle futures market. Live cattle futures are a financial derivative product that represents a contract to deliver or receive a specified quantity of live cattle on a future date, at a pre-agreed price. The contract trades on the CME Globex platform and is settled by physical delivery. Your live cattle futures strategy should include 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 live cattle futures strategy and we also make a backtest.

What are Live Cattle futures?

Basically, live cattle futures refer to futures contracts in which the underlying asset is live cattle. Live cattle are cattle that have grown to the requisite weight for slaughter, which is usually about 1200 to 1400 pounds.

A live cattle futures contract is, therefore, a legally binding agreement to receive or deliver a specified quantity of full-grown cattle, weighing between 1,200-1,400 pounds, on a future date at a pre-agreed price. The contract trades on the CME Globex platform, and it is settled by physical delivery.

Live Cattle futures contracts are most often traded by industry stakeholders (cattle farmers and meat processors) who use it to hedge their risk exposure in the cattle market, rather than by speculators who just want to trade price fluctuations. However, with the right strategy, you can trade live cattle futures to diversify your portfolio into the livestock commodity market or even to speculate and profit from price movements.

What is a Live Cattle futures strategy?

A live cattle futures strategy refers to the methodologies and techniques you can use to profitably trade the live cattle futures market. Your live cattle futures strategy should include technical and fundamental analyses required to find entry and exit signals.

With technical analysis, you should be able to look at a live cattle futures chart and determine the best entry point to purchase a contract, you don’t want to buy too high and risk a loss. Fundamental analysis would mean following USDA reports and considering macroeconomic factors.

In addition to your analysis for entry and exit signals, you need to have some risk management and trade management techniques.

Live Cattle futures strategy backtest

A backtest with strict trading rules, settings, statistics, and historical performance is coming soon.

What is the seasonality of Live 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 live cattle market tends to perform better during the second half of the year than during the first half of the year, as you can see in the chart below:

Lice cattle futures strategy
Source: Equity Clock

What moves the Live Cattle What affects the Live Cattle the most?

Some of the factors that move the live cattle market include:

  • The global beef demand: When beef demand increases, live cattle prices rise as well. On the flip side, a decline in the global demand for beef leads to lower cattle prices.
  • Feed prices: When feed prices are high, ranchers push their cattle to the market prematurely, which leads to a supply surplus and a decline in live cattle prices. On the flip side, when feed prices are low, ranchers are not in a hurry to sell but, instead, keep their cattle and wait for higher prices.
  • Cattle on Feed Report: Live cattle prices can be affected by USDA’s 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.
  • Cattle Feeding Spreads: This is based on the correlation between live cattle prices, feeder cattle prices, and corn (feed) prices.

How are Live Cattle futures traded?

Live 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 40,000 pounds (~18 metric tons) of live cattle. There are monthly contracts of Feb, Apr, Jun, Aug, Oct, and Dec listed for 9 months. The contract is settled by physical delivery, and trading terminates at 12:00 Noon CT on the last business day of the contract month. Trading at Settlement (TAS) also applies.

How do you start trading Live Cattle futures?

You can trade the live cattle contract through a futures broker, which would grant you access to the CME exchange where the contract is traded and help to clear your trades. So, if you want to trade the live cattle contract, you have to register with a futures broker and fund your account. You don’t need to have the full worth of the contract to trade it — a little above the required margin ($1,600) is enough.

Some CFD brokers, like IG, offer live cattle CFDs that track the live 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 the Live Cattle trading at?

As of December 9, 2022, live cattle futures were trading at 152.450 US cents per pound. See the chart here on the CME platform chart. The chart was gotten from TradingView.

Note that since the price changes from time to time, 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 Live Cattle futures hour?

The trading hours for live 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).

For CME ClearPort, the schedule is Sunday – Friday, 5:00 pm – 4:45 pm CT. There is no reporting Monday to Thursday, from 4:45 – 5.00 pm CT.

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 use the charts on TradingView; the platform offers free access to charts of different instruments. However, you have to subscribe to the Pro services if you want to connect it to your broker to TradingView, assuming it is one of the brokers supported by the platform. You can also access the TradingView chart for live cattle futures via the CME platform.

Another option is to use the chart on Yahoo Finance. You can also get charts from a paid third-party platform, such as MultiCharts.

What are the trading symbols for Live Cattle futures?

The trading symbol for the live cattle contract is LE. The product codes for the different services are as follows:

  • CME Globex: LE
  • CME ClearPort: 48
  • Clearing: 48
  • TAS: LET

What is the specification for the Live Cattle futures contract?

One contract of live cattle futures is equivalent to 40,000 pounds (~18 metric tons) of live 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 $10.00 per contract. The required maintenance margin for the December 2022 contract is $1,600.

There are monthly contracts (Feb, Apr, Jun, Aug, Oct, and Dec) listed for 9 months. The contract is settled by physical delivery, and trading terminates at 12:00 Noon CT on the last business day of the contract month. TAS trading also applies — the TAS clearing price equals the daily settlement price of the underlying futures contract month plus or minus the TAS transaction price.

Why should you start trading Live Cattle futures?

You can trade live cattle futures for any of the following reasons:

  • To secure a good price for your cattle if you are a farmer
  • To secure a stable supply of cattle if you are a meat processor
  • To diversify your portfolio into the livestock commodity market if you are an investor
  • To speculate on cattle prices and try to make profits from price fluctuations if you are a retail trader

What is the contract size?

One full contract of live cattle futures is equivalent to 40,000 pounds of live cattle. The price of a pound of live cattle, as of writing, is 152.450 US cents or $1.5245. So, the total USD worth of one full contract of live cattle futures is 40,000 x $1.5245 = $60,980.

What is the tick size?

The tick size of a full contract of live cattle futures is $10.00 per contract.

What is the minimum price fluctuation for Live Cattle futures?

The minimum price fluctuation is 0.00025 per pound.

Are there any ETFs?

While there are no ETFs that specifically track the live cattle futures market alone, there are a few ETFs that either track the cattle market (both live and live cattle) or the entire livestock or agricultural commodity market. The most targeted one is iPath Series B Bloomberg Livestock Subindex Total Return ETN (COW). This fund tracks the cattle market and the lean hog market, so it offers an opportunity to gain exposure to hogs and cattle.

What factors affect Live Cattle prices?

The main factors that affect live cattle prices are global beef demand and feed prices, and most of that is 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 that can affect live cattle prices is Cattle Feeding Spreads, which refer to the correlation between live cattle prices, feeder cattle prices, and corn (feed) prices.

What is the all-time high for Live Cattle futures?

According to TradingView’s chart for the live cattle futures (LE), the all-time high for live cattle futures is 171.650 US cents. This price was reached in November 2014.

What are the biggest risks in trading Live Cattle futures?

The biggest risk when trading live cattle futures is adverse price movement if you are trading a highly 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 live cattle futures market, so getting someone to take the opposite end of your trade may be difficult, leading to wide spreads.

What is the settlement method?

Deliverable

What is the settlement procedure?

On expiry, the seller is to deliver the specified quantity of live cattle to the buyer under the supervision of the exchange. CME Group staff determines the settlement for the expiring Live Cattle (LE) futures contract based on trading activity on CME Globex between 11:58:30 and 12:00:00 Central Time (CT) – the last minute and a half of the contract’s life.

What is the block minimum for Live Cattle futures?

50 contracts

What is the difference between Live Cattle futures and the CFD for Live Cattle?

Live cattle futures contracts have fixed expiration dates and may involve the physical delivery of cattle. On the other hand, Live cattle CFDs can be traded indefinitely, and the issue of cattle delivery does not arise.

Which forex pair is the same as Live Cattle futures

Live Cattle CFD

What are some important dates for this market?

Some of the important dates in the live cattle market include:

  • 1964 when live cattle futures contracts were introduced
  • October 1976 when the market made its all-time low of 35.100 US cents
  • November 2014 when the market reached its all-time high of 171.650 US cents

What is the highest level Live Cattle has ever been its all-time high?

According to TradingView’s chart for the live cattle futures (LE), the highest level live cattle futures has ever reached was 171.650 US cents, which was recorded in November 2014.

What is the lowest level Live Cattle has ever been its all-time low?

According to TradingView’s chart for the live cattle futures (LE), the lowest level live cattle futures has ever fallen to was 35.100 US cents, which was recorded in October 1976.

Conclusion

You can use a live cattle futures strategy to hedge your exposure in the cattle or livestock market, diversify your investment portfolio into livestock, or simply speculate to profit from price fluctuations.

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