Like the tropical and grain commodities, livestock is a unique category in the agricultural commodities sub – asset class. Its not a widely followed area of the commodities markets —unlike crude oil, for example, youre not likely to see feeder cattle prices quoted on the nightly news —but this doesnt mean you should ignore this area of the markets. That said, raising livestock is a time – consuming and labor – intensive undertaking, and the markets are susceptible and sensitive to minor disruption. This section covers the markets for cattle, lean hogs, and frozen pork bellies.
Even by agricultural futures standards, livestock futures are notoriously volatile and should be traded only by traders with a high level of risk tolerance. Keep in mind that trading agricultural futures requires an understanding of the cyclicality and seasonality of the underlying commodity as well as large capital reserves to help offset any margin calls that may arise from a trade gone bad. If your risk tolerance is not elevated or you are not comfortable in the futures arena, then I recommend you dont trade these contracts because you could be setting yourself up for disastrous losses. Venture into this area of the market only if you have an iron – clad grasp on the concepts behind futures trading —and a high tolerance for risk.One resource that provides fundamental data relating to the consumption and production patterns of pork bellies, livestock, and other commodities is the CRB Commodity Yearbook, compiled by the Commodity Research Bureau. This book includes a large number of data on some of the most important commodities, including the identification of seasonal and cyclical patterns affecting the markets.
Staking a claim on cattle
Throughout the ages, cows have been valued not only for their dietary value, but also their monetary worth. Cows are literally a special breed because they are low maintenance animals with high products output: They eat almost nothing but grass yet they are used to produce milk, provide meat, and, in some cases, create leather goods. This input to output ratio means that cows occupy a special place in the agricultural complex.
Feeder cattle
You can get information on the CME Feeder Cattle Index through the CME Web site at www.cme.com.
To get livestock statistical information, you should check out the U.S. Department of Agricultures statistical division.
Even by agricultural futures standards, livestock futures are notoriously volatile and should be traded only by traders with a high level of risk tolerance. Keep in mind that trading agricultural futures requires an understanding of the cyclicality and seasonality of the underlying commodity as well as large capital reserves to help offset any margin calls that may arise from a trade gone bad. If your risk tolerance is not elevated or you are not comfortable in the futures arena, then I recommend you dont trade these contracts because you could be setting yourself up for disastrous losses. Venture into this area of the market only if you have an iron – clad grasp on the concepts behind futures trading —and a high tolerance for risk.
