Feeder Cattle Futures Price
The feeder cattle futures price is different
than the feeder cattle price in the cash (physical) market. Generally, the price of a commodity for future delivery is higher
than the cash price due to carrying costs (insurance, interest, and warehousing fees). This is called contango. The opposite
of contango is backwardation. Backwardation is when the price of a commodity for future delivery is lower than the cash price
Backwardation is normal in a “seller’s market.”
you trade feeder cattle futures, your futures price depends on where you get into the market. After you post your initial
margin, your profit or loss depends on where you enter and exit the market (minus transaction costs).
The contract size for feeder cattle is 50,000 lbs. So each $.01
move equals $500. As the market moves your account value adjusts. If your account value drops below the maintenance margin,
a margin call is due. A margin call can be met by offsetting positions or adding money to your account.
Trading futures is like driving a car without insurance. You save the insurance premium, but if you crash
you will wish that you were insured. If you have very deep pockets or deal with the physical feeder cattle product then futures
may be for you. If you are a speculator with a limited amount of risk capital then feeder cattle options are a better way
for you to invest in the feeder cattle market.