Buying Feeder Cattle Call Options to Profit from a Rise in Feeder Cattle Prices

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Buying Feeder Cattle Call Options to Profit from a Rise in Feeder Cattle Prices

The price of Feeder Cattle Futures is 120.500 USD (per pound) today.

Will FC price drop / fall?

Yes. The Feeder Cattle Futures price may drop from 120.500 USD to 105.089 USD. The change will be -12.789%.

Will FC price grow / rise / go up?

Will FC price crash?

According to our analysis, this can happen.

Beef Industry Futures: Feeder and Live Cattle

January 12, 2020 by John Ryan | Ag Marketing

The U.S is the largest producer of grain fed beef in the world due to its abundance of pasture suitable for grazing and its large supply of feed grains. Live cattle prices have been rallying to all time high prices, presenting numerous trading opportunities. Whether one is a rancher needing risk management tools or a speculator seeking trading opportunities, cattle futures provide the liquidity and transparency necessary for market activity.

Before taking advantage of these tools, one must understand the fundamentals of the market. There are two types of cattle futures to trade when addressing beef futures: feeder cattle and live cattle. While feeder and live cattle are related contracts, each has its own characteristics that affect supply and demand. Below, I will discuss the timeline of the cattle’s life cycle along with the features of each futures contract and the factors that affect these contracts.

The First Nine Months

Ranchers will traditionally breed their cattle in the summer which will produce calves in the spring. On average, a newborn calf will weigh 70 to 90 pounds at birth. Before a calf is considered a feeder, it has already been gone through the process of being born, weaned and sent out to graze for up to nine months.

Feeder Cattle

Feeder cattle are weaned calves that have been raised to be 600-800 lbs.Once a calf reaches a minimum weight, it is sent to a feedlot with the goal of putting on weight aggressively. Traditionally, feeder cattle must be mature enough in order to go to the feedlot and be fattened prior to slaughter. The process of transforming feeder cattle to live cattle usually takes between 3 to 4 months. Once again, the feeder cattle put on weight aggressively in the feed lots to reach the desired finish weight of 1,000-1,300 lbs. Corn is the best way to quickly fatten feeder cattle; therefore, the price of corn has a direct effect on the price of feeder cattle.

Feeder cattle futures contracts:

  • Symbol: FE (open outcry), FC (electronic trading)
  • Contract size: 50,000 lbs. (of feeder cattle)
  • Specs: 649 to 800 lbs
  • Minimum tick: $0.00025 cents per pound (or $12.50 per tick)
  • Limits: $0.03 (or $1,500 per contract)
    *Feeder cattle futures are cash settled, so there is no delivery unlike the live cattle futures.
  • Months traded: Jan, Mar, Apr, May, Apr, Aug, Sep, Oct, and Nov.
    *To arrive at the value of the contract, simply multiply the price of feeder cattle times the size of the contract. For example, if feeder cattle are trading at a price of 1.46550, the total value of the contract is $73,275.00 (50,000 x 1.46550).

Live Cattle

Live cattle futures began trading in 1964 at the Chicago Mercantile Exchange (CME) as the first non-storable futures contract. Live cattle are traditionally raised in the Midwest, Southwest, and California (in the US). The term live cattle refers to cattle that have reached the necessary weight for slaughter. Traditionally, live cattle remain on the feedlot for up to 5 months (after being moved from feeder) while they put on an additional 500 lbs. Feed lots go on to sell the live cattle to meat packers that slaughter the cattle. The average slaughter weight is about 1,250 lbs. While slaughtered cattle have value from their hide and other parts, the majority of the price comes from boxed beef cutouts. Boxed beef cutouts are the major cuts that are often deboned and are packed and sealed in cardboard boxes.

Live cattle futures contracts:

  • Ticker symbol: LE (pit trading), LC (electronic trading)
  • Contract size: 40,000 lbs. (of live cattle)
  • Contract specs: 55% Choice, 45% Select, Yield Grade 3 live steers
  • Minimum tic size: $.00025 cents per pound (or $10.00 per tick)
  • Price limits: $0.03
  • Months traded: Feb, Apr, June, Aug, Oct, Dec
    *For example, to arrive at the price of live cattle futures that is trading at 1.24, multiply 1.24 times 40,000- the total value of the contract is $49,600.00.

Reports

The most important report for cattle futures is the Cattle on Feed Report. This report contains monthly totals of cattle in the feedlots that will be sent to the market, placement of cattle intended to be slaughtered, and marketings (sales). The USDA reports are also important as it reflects the inputs that are required to feed cattle. Understanding when the reports are released and what analysts to expect is pertinent when trading feeder and live cattle.

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Many active traders aren’t familiar with the differences between feeder cattle and live cattle. To properly trade the feeder and live cattle futures, one must have a fundamental understanding of the beef industry. Because of the long time period from newborn calf to slaughter, the market is subject to volatility and directional moves. Knowing market fundamentals can make all the difference between timely and well-planned trades, whether one is hedging or speculating.

Livestock Futures and Options to Hedging

If you are interested in the livestock commodity futures industry but feel you could use more information to get started, then download this self-study guide to learn the fundamentals of futures trading and hedging. You will receive an incredibly detailed, step-by-step explanation of the life of a livestock futures contract, as well as what tools you will need to possibly realize your goals.

Risk Disclosure

This material is conveyed as a solicitation for entering into a derivatives transaction.

This material has been prepared by a Daniels Trading broker who provides research market commentary and trade recommendations as part of his or her solicitation for accounts and solicitation for trades; however, Daniels Trading does not maintain a research department as defined in CFTC Rule 1.71. Daniels Trading, its principals, brokers and employees may trade in derivatives for their own accounts or for the accounts of others. Due to various factors (such as risk tolerance, margin requirements, trading objectives, short term vs. long term strategies, technical vs. fundamental market analysis, and other factors) such trading may result in the initiation or liquidation of positions that are different from or contrary to the opinions and recommendations contained therein.

Past performance is not necessarily indicative of future performance. The risk of loss in trading futures contracts or commodity options can be substantial, and therefore investors should understand the risks involved in taking leveraged positions and must assume responsibility for the risks associated with such investments and for their results.

Trade recommendations and profit/loss calculations may not include commissions and fees. Please consult your broker for details based on your trading arrangement and commission setup.

Buying Feeder Cattle Call Options to Profit from a Rise in Feeder Cattle Prices

This article is the second in our series covering multi leg complex spreads fundamentals. The first article focused on intra commodity spreads (Butterfly, Double Butterfly, Condor). The third article will finish with Crack spread and summary.

Inter commodity

The most popular inter commodity spreads involve the simultaneous execution of multiple futures positions designed to replicate the inputs and outputs of several real world product transformations or to hedge that production process by putting on the opposite spread. Examples of these are Crush and Crack spreads.

Soybeans Crush spread

The crush expression is taken from the soybean processing term for buying soybeans, crushing them and selling the resulting soymeal and soybean oil. In the Soybean Crush, a raw material input soybeans (S) is processed into output products soybean meal (SM) and oil (BO).

In the cash market, a 60-pound bag of soybeans can be crushed into 11 pounds of soybean oil, 44 pounds of 48 percent protein soybean meal, three pounds of hulls, and one pound of waste. The gross processing margin (GPM) allows producers to compare the input cost of beans with the output revenues of bean products.

To get correct expression for GPM we need to do some calculations as the quantities are given in different units of mass, volume and price:

  • Soybean contracts are quoted in cents per bushel
  • Soybean Oil is quoted in cents per pound. Following conversions are necessary:
    • Price – from dollars to cents by multiplying price by 100
    • Mass – from short tons to pounds by dividing by 2000
    • Mass to volume – crushing process produces 44 pounds of soybean meal per bushel of soybeans, the price is converted to bushels by multiplying by 44
    • This three conversion are equivalent to multiplying by 2.2 (100/2000*44)
  • Soybean Meal is quoted in dollars per short ton. The crushing process produces 11 pounds of oil per bushel of soybeans, price is converted to cents per bushel by multiplying by 11.

Knowing the conversion ratios, we can put together margin expression:

GMP = -S+SM*2.2 +BO*11

CME Exchange uses GMP to calculate Soybeans Crush Index (BCX) which can’t be traded directly, but is the underlying for options. For futures trading we can use Board Crush which is GPM calculation when applied to the soybean futures product complex traded on the CME. Board Crush can be traded as “mini-size” in 1:1:1 (-SU14+SMU14+BOU14) ratio or more precise version 10:11:9 (-10*SU14+11*SMU14+9*BOU14).

SeasonAlgo will automatically calculate these spreads as Equity spreads (each leg is multiplied by its point value).

A soybean processor concerned about rising input costs can go long soybeans and short soybeans meal and oil. If soybean price rises, the higher purchasing costs are offset with a gain on the soybean futures. On the other way a decline in the price of soybean meal or oil that reduces processor’s revenues is offset by gains on the short futures positions. When the price of soybeans rises relative to the price of bean meal and oil, GPM can sometimes become negative and processors can stop their production or they can enter reverse Crush hedge consisting of short soybean and long soybeans oil and meal that restores the viability of processing even during periods of negative GPM. Reverse Crush is also called synthetic processing because the positions in the futures replicate rather than hedge the processor’s cash market position.

When trading Soybean Crush, watch for divergence between the products. Processors are trying to maintain their margins despite of changing market conditions and trends. If spread is narrow, the profit potential inclines in the direction of soybean meal and oil contracts (cost to process soybeans is too high to produce any reasonable profit). If spread is widening, processors push to sell soybean meal and oil to realize their profits. This push usually promises that the product prices will be forced down to converge with soybean prices.

Cattle Crush spread

A similar process exists in cattle feeding, but it differs in that multiple inputs are transformed into a single output. Feedlot operators buy feeder calves and feed to start the process then, after a period of time, sell finished cattle ready for slaughter. Cattle Crush (or also called Cattle Feeding Spread) involves buying feeder cattle (FC) futures and corn futures (C), and selling live cattle (LC) futures. Cattle Crush models the economics of the feedlot operation and provides a way to estimate profitability and manage margin risk. And of course offers profit opportunities for traders.

The difference between the purchased input value and the sold finished cattle value is called the gross feeding margin (GFM). Different numbers of each contract are necessary to balance Crush properly. Because feeder cattle contract covers about 66 animals (50 000 pounds per contract divided by an average 750 pound feeder calf) and live cattle contract only covers about 32 animals (40 000 pounds per contract divided by an average 1250 pound steer), the number of live cattle contracts must be doubled.

The precise amount of corn needed for cattle feeder to achieve its weight gain is influenced by many factors, so for simplicity’s sake we will take an average value 2650 bushels. The price risk can be managed by one corn futures contract of 5 000 bushels resulting in 1:1:2 ratio. However, that will result in over-hedging. Commercial hedgers have to determine the number of contracts to trade based on feedlot characteristics to achieve closest hedge. For example they can use mini-sized corn contracts or different ratios (2:4:8, 2:3:6, 3:5:10). Speculators trading Cattle Crush may use different criteria as they don’t need perfect hedge and can accept and manage risk. With 2:1:1 ratio speculator may realize this combination of futures contracts creates more risk from corn price movements than is likely to exist in feeding physical cattle and accept it.

Beside the number of contract, equally important is the arrangement of the contract months. Feeder cattle contract should be four to six months earlier than live cattle contract. This represents the amount of time required to feed an animal to slaughter weight. The contract month for Corn typically falls between the Feeder Cattle and Live Cattle contract months. This is done to represent the average cost of corn for the duration of the feeding period. When you use SeasonAlgo Wizard to load predefined Cattle Crush spread, contract months will be automatically correctly chosen and spread is calculated as Equity spread. Our spread definition follows input-output and contract’s expiration order. Example Cattle Crush spread can be -FCU14-CZ14+2*LCG15. Rationale behind the speculation on Cattle Crush is very similar as on Soybean Crush.

Seasonal strategies and patterns are based on statistical calculations over the past history. There can be fundamental factors that occur every year and can cause seasonal moves, but statistical optimization and data mining can also produce strategies where no consistent price trend exists. There is no guarantee that price patterns will recur in the future. Even if seasonal pattern occurs in the future, it doesn’t indicate profitable trades. Results can be affected by transaction fees and position liquidation. All strategies give only hypothetical performance and are not adjusted for commission and splippage. There is no implication that anyone has in the past or will in the future accomplish profits with these strategies.

Historical data and analysis should not be taken as an indication or guarantee of any future performance.

Анализ фьючерса Feeder Cattle от Masterforex-V

Молодые бычки на откорме (Feeder Cattle) – биржевой товар, контракты заключаются на товарных и фьючерсных биржах.

График онлайн Feeder Cattle

Контракт Feeder Cattle отличается от контракта Live Cattle тем, что в первом случае предметом торга являются молодые бычки, которых откармливают для последующего убоя, а во втором уже готовый к убою крупный рогатый скот.

Во всем мире насчитывается свыше 1 млрд. голов КРС, включая молочных коров.

Еда – то, что нужно человеку всегда. Золото и бриллианты – статус, автомобили, яхты – роскошь, еда – жизненная необходимость. Такие товары актуальны во все времена, а учитывая непрерывный и интенсивный рост популяции людей, потребности в продуктах питания будут расти.

На биржах молодые бычки торгуются в виде контрактов Feeder Cattle.

Единица измерения Feeder Cattle

Статистика крупного рогатого скота показывает, сколько голов имеется в той или иной стране или хозяйстве, то есть, количество. На бирже такой вариант неприменим, ведь каждый бычок имеет разный вес, а покупатели платят за вес, а не количество.

Каждая биржа указывает единицу измерения товара, исходя из принятой метрической системы. Это могут быть тонны, бушели, тюки, фунты, баррели, тройские унции.

Feeder Cattle на бирже торгуется фунтами (около 0,45 кг). Один поставочный фьючерс предполагает поставку 50 тыс. фунтов (около 23 тонны) молодых бычков.

Цена Feeder Cattle на бирже

Факторы цены молодых бычков:

  • баланс между производством и спросом;
  • спекулятивные сделки;
  • курс валюты;
  • форс-мажор (засуха, циклоны и прочие природные катаклизмы, война, политический кризис и т.д.);
  • мировые кризисы.

Торгуют товаром на бирже преимущественно в национальной валюте: долларе США, иене, рупии, рубле, юане, евро, швейцарском франке, рэнде, песо, гонконгском долларе, австралийским долларе и т.д. Бывают исключения, когда биржа предлагает для торгов несколько валюты.

На графике ниже приведена цена молодых бычков на CME Group с 1991 по 2020 годы в американских центах за фунт.

Как видим, цена Feeder Cattle в долгосрочной перспективе растет. В 2020 году наблюдался резкий ценовой скачок вверх с последующим откатом, но цена после коррекции вниз все равно остается на уровне выше, чем в 90-х и 00-х годах.

Инвестирование в Feeder Cattle

Для инвестирования в биржевые товары доступны различные инструменты:

Перед началом штурма финансовых рынков необходимо получить необходимые знания, они позволят анализировать объемы, работать с индикаторами и осцилляторами, учат грамотному манименеджменту и другим тонкостям работы.

Сегодня трейдинг, благодаря множеству предложений и вариантов, доступен не только институциональным инвесторам. Но даже если вы сами не желаете торговать, например, из-за нехватки времени или неуверенности в собственных силах, получайте профит, работая с доверительными управляющими.

Альтернатива товарному рынку:

Поголовье КРС в мире

Самое большое поголовье крупного рогатого скота в Индии и Бразилии – на двоих свыше половины от всего количества. Россия, Беларусь и Украина расположились в первой двадцатке.

Поголовье КРС (2020 год):

1. Индия – 305 млн. (30,4%).

2. Бразилия – 232,35 (23,2%).

4. США – 94,399 (9,4%).

5. Евросоюз – 88,445 (8,8%).

6. Аргентина – 53,765 (5,4%).

7. Австралия – 25,5 (2,6%).

9. Мексика – 16,584 (1,7%).

10. Турция – 14,5 (1,5%).

15. Беларусь – 4,362 (0,44%).

17. Украина – 3,739 (0,37%).

Крупный рогатый скот в России

В России разведением КРС занимаются в большинстве регионов (69). Если говорить только о мясных породах, в 2020 году в стране насчитывалось 3,6 млн. голов, что на четверть больше, чем в 2020 году.

Структура производства:

  • хозяйства населения – 57,8%,
  • сельскохозяйственные предприятия – 33,2%,
  • коллективные фермерские хозяйства – 9,0%.

Крупнейшие товарные и универсальные биржи

Фьючерсы и опционы Feeder Cattle торгуются на площадках CME Group.

ТОП товарных, фьючерсных и универсальных бирж мира:

  • NYMEX (Нью-Йоркская товарная биржа),
  • COMEX (Товарная биржа, часть NYMEX),
  • CBOT (Чикагская торговая палата),
  • CME (Чикагская товарная биржа),
  • ICE (Интерконтинентальная биржа),
  • Миннеаполисская зерновая биржа (MGEX),
  • NADEX (биржа бинарных опционов).
  • LME (Лондонская биржа металлов),
  • LIFFE (Лондонская биржа фьючерсов).
  • ASX (Australian Securities Exchange, Сидней, Австралия).

CFD на Feeder Cattle

Часто начинающие трейдеры задают вопрос: как торговать на товарном рынке, что мне делать с этими молодыми бычками (медью, какао-бобами …), куда мне их привезут после покупки контракта – под подъезд или нужно забрать в порту и что делать дальше?

Номер №1 рейтинга брокеров Академии Masterforex-V компания Nord FX предлагает CFD (Contract For Difference). С “контрактами на разницу цен” торговля происходит без покупки физического товара.

Брокер также предлагает кредитное плечо, сделавшее торговлю еще более доступной, ведь не нужно платить 100% лота!

Товары сырьевого рынка

  • Сектор энергетики: нефть (WTI, OMAN, URALS, Brent), бензин, мазут, дизель, биодизель, газойль,керосин, бензол, природный газ, сжиженный природный газ, уголь, электроэнергия.
  • Промышленный сектор:метанол, полипропилен, этанол, этилен.
  • Чермет и цветмет:алюминий, молибден, уран, сталь,никель, кобальт, олово, свинец, латунь, цинк, медь.
  • Драгметаллы:палладий, платина, серебро, золото.
  • Аграрный сектор: пшеница, ячмень, овес, рис, кукуруза, соя, соевое масло, соевый шрот, семена подсолнечника, хлопок, живой скот (live cattle), свиные туши (lean-hogs), молодые бычки (Feeder Cattle).

Финансовые регуляторы на фьючерс и CFD Feeder Cattle

Чтобы обезопасить себя от мошенников, проверяйте у партнеров наличие лицензии. Выдают их национальные регуляторы.

Банк России, ФСФР – в России, CFTC, NFA, SEC – в США, CySEC – на Кипре, FI – в Швеции, FCA – Великобритании, FSAEE – в Эстонии, CNMV в – Испании, FCMC – в Латвии, FINMA – в Швейцарии, PFSA – в Польше, BaFin – в Германии, ACPR и AMF – во Франции, MiFID (для всех стран Евросоюза), НКЦПФР – в Украине, AFSA – в Казахстане, MAS – в Сингапуре, SFC – в Гонконге, CSRC – в Китае, SEBI – в Индии, FinCom – в Китае, SET – в Таиланде, IFSC в Белизе, FSC – на Маврикии, FSCL – в Новой Зеландии, ASIC – в Австралии, FSB – в ЮАР, Botswana IFSC – в Ботсване, ISA – в Израиле, CMB – в Турции, Dubai FSA – в Дубае, ОАЭ, Tadawul – в Саудовской Аравии.

А как вы оцениваете перспективы инвестирования производные инструменты Feeder Cattle, насколько, по вашему мнению, привлекателен рынок? Оставьте, пожалуйста, свой отзыв в комментариях и поделитесь статьей в соцсетях.

С уважением, wiki Masterforex-V – курсы бесплатного (школьного) и профессионального обучения Masterforex-V для работы на форексе, фондовых, фьючерсных, товарных и криптовалютных биржах.

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