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Live Cattle Hedger

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Live Cattle Hedger

A hedger in the live cattle market is an individual who uses the futures market to offset price risk when intending to sell or buy the actual live cattle. Hedging is possible because the live cattle cash prices and live cattle futures prices tend to move in the same direction. However, the difference between the cash price and the futures price may narrow or widen. The change in the difference between the cash price and the futures price is called basis risk. Because of the changing basis no hedge can be perfect.

Commodity futures and futures options can be used to hedge cattle price risk.  A "cattle hedge" can be used to reduce the risk of losses in the beef production and the livestock industry. For example, cattle investors or cattle owners that purchase feeder cattle in the early Spring put themselves at risk that there will be a decline in prices of cattle when the Fall selling period rolls around. By using futures and options on futures, owners and investors of cattle can attempt to manage risk, which may in turn protect the hedger’s overall profits. 

An Overview of CME Commodity Futures For Hedgers

Click on the link above to download a very informative .pdf brochure entitled "An Overview of CME Commodity Futures for Hedgers.” It was published by the Chicago Mercantile Exchange. This is a must read guide for any hedger considering a trade in the live cattle market using exchange traded live cattle futures and options.

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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