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Feeder Cattle Fundamentals

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Basic Fundamentals
  
What Market Fundamentals Can Affect The Feeder Cattle Futures?

In free market economies, supply and demand is the primary enabler for price movement. Any outside forces that affect supply and demand eventually affect prices. When you are considering a trade in the feeder cattle market some of the basic fundamentals that you should consider are:

1. Feed Corn is widely used in livestock feed so feeder cattle prices are negatively correlated to corn prices. When corn prices go up feeder cattle prices go down, and when corn prices go down cattle prices go up. However, distillers' grain is starting to displace corn so the correlation is not as close as it once was.

2. Weather Weather can be a major factor in cattle prices. Hot weather can usually results in cattle not gaining normal weight as they tend to eat less. Extremely hot weather can result in significant death loss of calves, yearlings, and finished cattle. Also, extremely cold weather causes cattle to become stressed and burn more energy to stay warm, which means less weight gain. Less weight gain equal less meat and lower prices.

3. Disease Bovine spongiform encephalopathy (BSE) also know as mad cow disease was first identified in 1986. The number of animals infected has been small and isolated, but the publicity about even one case can send prices sharply lower because of worries about the effect on domestic consumption and import restrictions imposed by other nations.

4. USDA Reports The most important report for cattle futures is The Cattle on Feed Report. This report contains the monthly total number of cattle and calves on feed, placements and marketings.

5. Economy Beef demand and cattle prices are directly impact by consumers’ incomes. The current financial crisis may reduce those incomes and therefore cattle prices. The last two recessions in the U.S. were very mild. This recession may be more severe, more like the recessions of 1974 and 1975 and again in 1981 and 1982 when real GDP dropped near three percent. A drop of that magnitude this time could have a $4.50 to $5.00 per hundredweight negative impact on feeder cattle prices, not as much as prices have already dropped.

These are just some of the basic fundamentals to keep in mind when you are considering a trade in the feeder cattle market. Therefore, before opening up a commodity account to trade feeder cattle you should consult with a licensed commodity broker that follows the feeder cattle market to discuss investment strategies.

Click here to contact a commodities broker with experience in the feeder cattle market.

Commodity trading is not suitable for everyone. The risk of loss in trading can be substantial. This material has been prepared by a sales or trading employee or agent of Van Commodities, Inc. and is, or is in the nature of, a solicitation. This material is not a research report prepared by Van Commodities, Inc. Research Department. Please view our Risk Disclaimer.

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