Feeder Cattle are weaned calves that have been raised to a weight of 600 to 800 pounds. A newborn calf averages 70 to 90 pounds when it is born, typically in the Spring. After it is born, it is weaned and allowed to graze for up to nine months in order to reach the minimum weight, at which point it is sent to a feedlot. Once in the feedlot, cattle undergo an aggressive feeding process over the next three to five months, during which they gain an additional 500 pounds to reach a weight of 1100 to 1400 pounds.
Feeder Cattle futures contracts allow participants, such as producers, to hedge a decline in price between the time calves are born and when they are sold to feedlots. It also allows feedlot operators to hedge against an increase in the price of Feeder Cattle before the operator is ready to purchase them for their lot. Feeder Cattle futures trade in units of 50,000 pounds and in minimum price increments, or ticks of $12.50. They are listed for trading in January, March, April, May, August, September, October and November.
At expiration, rather than calling for the delivery of physical cattle, Feeder Cattle futures are settled in cash at a price equal to the CME Feeder Cattle Index on the last day of trading. The CME Feeder Cattle Index is calculated by CME Group staff using data provided by the USDA. The data and formula used to calculate the final settlement price is published on the CME Group website.
After feeder cattle reach the weight range of 1100 to 1400 pounds, they are considered live cattle. This means that they have reached the minimum weight for processing, at which point feed lots will sell the live cattle to meat packers.
Source: CME Group