🐄 Your Guide To Investing In Live Cattle. Live, Full-Grown Cattle Are Also Tradable Commodities!

Brief Background

What Can It Do For You

Price chart of live cattle (blue) & feeder cattle (orange) futures contracts over the years.

What Affects Live Cattle Prices

  • 🇺🇸(🇧🇷) US (Brazil) Production. The live cattle market is mostly characterised by futures & cash market prices in the US, partially because the US is the biggest producer of beef & veal, and partially because futures contracts use cattle that are born & raised exclusively in the US. That being said, futures contracts are traded globally, and beef exports from other countries (Brazil, EU & China are also big producers) could take away from US market share and add to overall supply, which could put downward pressure on prices.
  • 🌍 Global Beef Demand. The main use of live cattle is beef production, so beef demand is one of the biggest factors in driving cattle prices. Beef tends to be more expensive than other meats like pork or poultry, so when the global economy is strong and when consumers have higher purchasing powers, demand tends to be higher, and vice versa during recessions, which tends to lead to lower demand. Also, consumer preferences are always changing. If an event occurs that would impact demand for imported US beef, then this could affect prices too.
  • 🔄 Alternatives. Substitution also affects live cattle prices. As mentioned above, beef tends to be more expensive than other meats like pork or poultry. Furthermore, a small but growing percentage of the population are reducing meat consumption (or eliminating it from their diet entirely) for various reasons, opting for vegetarian or vegan alternatives.
  • 🌽 Feed Prices. As you might imagine, the price of feed (like corn, soybeans, etc.) can affect live cattle prices, but not in the way you think. When feed prices go up, producers might sell live cattle to slaughterhouses a bit early to avoid rising costs. This could then lead to oversupply in the short term, which then lowers prices. So, feed prices tend to be inversely correlated with live cattle prices.
  • ☀️ Seasonality/Weather. Live cattle prices tend to show seasonal cycles, with both supply & demand factors that contribute to this.
  • 📝 Cattle on Feed Report. This is a monthly report published by the USDA, which has data on how many cattle & calves are on feed (basically pre-feeder cattle), how many cattle are in placements (feeder cattle, placed in feedlots where they’re fed to gain more weight), & how many cattle are marketed (shipped out of feedlots to be slaughtered). Traders, producers & meat packers use this to understand supply in the market as well as any changes.

🎢 What Happened During That 2011–2016 Roller Coaster Ride?

Global beef & veal production. Notice how China’s domestic consumption has been increasing in recent years, and how production isn’t able to meet its demand.
Global beef & veal imports & exports. China has also been significantly increasing imports in recent years, as has the US to a lesser extent.
Cattle on Feed January 2021 Report, showing data on cattle & calves on feed, cattle placed on feed (in feedlots), & marketed cattle (sent to slaughterhouses).

What Is It Used For?

  • 🥩 Beef. Quite obviously, cattle are mainly used for beef production.
  • Hides. The skin of the cattle is used to make a range of products including leather, footballs, brushes, some textiles, etc.
  • 🧼 Beef Fats. Beef fat can be used to make soaps, hand creams, lubricants, face creams, lipsticks, detergents, and more.
  • 🦴 Bones, Horns, Hooves. You might be surprised, but these are used too, making products like buttons, piano keys, glues & fertilisers.
  • 🍦 By-Products of Beef Production. These include other organs & offal, a food source for many countries, as well as gelatin extracted from bones, used to make marshmallows, ice cream, desserts, etc.

The Case Against Live Cattle

Popular Ways To Invest In Live Cattle — Pros/Cons of Each

  • Live Cattle ETNs. You’re pretty limited here since there’s no ETF/ETN that invests specifically in live cattle. However, there are ETNs that invests in livestock in general, in continuously rolling live cattle futures contracts. Because of this, you’re not just exposed to live cattle futures prices, but a number of others as well. Regardless, they’re traded on stock exchanges, so they’re pretty easy to buy and sell. Depending on which broker you go with, you may be charged with trading commissions. ETNs also charge an expense ratio, or management fee that gets taken out of their total holdings and is then reflected on your account. Just be aware that since it’s an ETN, you are essentially buying a bond, an IOU, a debt note, and not in actual, physical live cattle. Be sure to read the fine print & understand the risks and costs involved.
  • Live Cattle Futures Contracts. A binding agreement traded on futures exchanges between two parties where they agree to buy/sell live cattle at a specified time in the future with an agreed-upon price. A standard contract deals with 40,000 pounds of live cattle! These futures contracts are settled physical delivery after the contracts have expired. Because you are using a significant amount of borrowed money, even small price changes in live cattle prices can either lead to massive profit, or massive losses beyond what you paid for, potentially leaving you in massive debt. They are certainly high-risk and not recommended for beginners. Further, fees associated with futures trading include broker commissions, and exchange/clearing fees.

TL;DR — Is It The Right Investment For You?



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