understanding cattle futures

[tncattle]

here's the link:

http://www.cmegroup.com/trading/agricul ... attle.html


Someone explain as basic and simple as you can how to understand the numbers. What weight animal are these prices based on etc? I don't think I fully understand how it all works.

 

[tncattle]

anyone :???: just :compute: your answer.

 

[terra8186]

"Feeder Cattle" refers to the young animals (weighing between 650 and 849 pounds) that are sent to feedlots to be finished into "fed" cattle. This is different from live cattle, which are older cattle nearer to slaughter.


Here is the link

http://www.wikinvest.com/futures/Feeder_Cattle_Futures

 

[terra8186]

Wikinvest should give you all the answer you have

 

[tncattle]

Okay, what I want to know is:


Those prices for example that I see for Oct. 2011 are they nothing more than a guess as to what everyone thinks they will actually be in Oct. 2011?

In other words they think they will be close to that price but could also be 50 cents lower without any warning?

What is the % of certainty that those will be the actual prices? Can you contract with someone now to buy your calves in Oct. for a firm price?

 

[Howdyjabo]

The futures are based on what people will pay for a contract- so yes its a guess but backed up by cash.
As far as with warning --------it can drop $3/day everyday until the buyers start to pay more again. And don't forget that once you are in, you still have to have extra cash to put in if the market moves wrong- thats what bankrupts people.

Then there is a thing called basis-- Rarely does the cash price equal the board price.you would have to do lots of reading to understand all the factors that impact basis.
Then there is a cash market- theres no LAW that it has to follow the futures- it can do whatever it wants to(proven over and over this year).

That being said- the futures, puts, calls confuse the #### out of me.
I always evny the grain guys who have it down to an art. They usually run two or three manipulations all at the same time and float in and out and change things as they go. It would make me a nervous wreck.

Yes you can sell calves for delivery at a future date- its done all the time with full loads. There are several video sales available for your area to do that on.

 

[tncattle]

So in other words when I buy some feeders in two weeks only God knows what the actual cash price will be when I sell in Oct.

 

[BC]

So in other words when I buy some feeders in two weeks only God knows what the actual cash price will be when I sell in Oct.

You got it. With all the volatility in the market, feedlots are not willing to price cattle out that far. The cash market typically is less than the futures. Remember that you are also dealing with truckload lots of same sex, weight and quality.

 

[Kingfisher]

So in other words when I buy some feeders in two weeks only God knows what the actual cash price will be when I sell in Oct.

Your picking up on this fast!

 

[manitgotcoldhere2]

Feeder cattle contracts are cash settlement, and live cattle can be physical delivery.

 

[manitgotcoldhere2]

As long as you have the underlying commodity futures contracts are a great management tool. Without the underlying commodity you have as good of odds at the casino.


But a $139 October futures contract will pay you the $139 contract price for that 50,000# in October. Now what your cattle are actually worth in October depends greatly upon the quality of your 50,000# of calves.

Basis rarely swings much in these parts of the country it may be different where you are from.

Only you know how your cattle sell compared to the futures market. I'm sure you know what the difference is from cash to futures in your area, and you also know how much your calves sell for compared to the futures. Don't be afraid to use the futures market as a management tool, as long as you have the cattle to sell for the cash needed at settlelment.