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Commodity Trading: Live Cattle Futures

Demand / Consumption Considerations

The major demand for Live Cattle is as beef. Beef is what’s for dinner, (at least that is what the American Beef Council would like one to think). The Cattle Industry, through boards and councils (like the American Beef Council), have taken to marketing in recent years to increase public awareness of beef, as well as educate people on the nutritional aspects of beef. This type of target marketing, with an emphasis on advertising on radio, television and print, has turned around the consumer’s viewpoint of beef. After declining since 1986, average per capita beef consumption has stabilized at approximately 67 pounds per capita retail weight. Consumption is expected to range from 64 to 67 pounds in the next several years.

The bulk of United States produced beef is used domestically, though the export market for United States Beef is increasing. Demand for beef tends to increase when the population and income levels increase. Demand for the better cuts of meat, referred to as choice beef, has kept pace with population increases, though rarely exceeding it. Beef demand is somewhat elastic. When beef prices increase, people tend to eat more pork, poultry and pastas. Shifts in public tastes play an important role in the Cattle population cycle.

The costs associated with feeding operations have the greatest effect on dietary changes. As grain prices increase, the cost to fatten Cattle to market weights increase causing the cost of beef to the consumer to likewise increase. Rising beef prices tend to make poultry and pastas more attractive meal choices than beef.

The major trends in meat consumption are set by slow-moving, macro-economic factors, such as consumer tastes, population levels, income levels, and the like. As such, most of the following analysis will be concentrated on the supply side.

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Disclosure of Risk: The risk of loss in trading futures and options can be substantial; therefore, only genuine risk funds should be used. Futures and options ARE not suitable investments for all individuals, and individuals should carefully consider their financial condition in deciding whether to trade. Option traders should be aware that the exercise of a long option would result in a futures position.

SEASONAL TENDENCIES ARE A COMPOSITE OF SOME OF THE MOST CONSISTENT COMMODITY FUTURES SEASONALS THAT HAVE OCCURRED IN THE PAST 15 YEARS. THERE ARE USUALLY UNDERLYING, FUNDAMENTAL CIRCUMSTANCES THAT OCCUR ANNUALLY THAT TEND TO CAUSE THE FUTURES MARKETS TO REACT IN SIMILAR DIRECTIONAL MANNER DURING A CERTAIN CALENDAR YEAR. EVEN IF A SEASONAL TENDENCY OCCURS IN THE FUTURE, IT MAY NOT RESULT IN A PROFITABLE TRANSACTION AS FEES AND THE TIMING OF THE ENTRY AND LIQUIDATION MAY IMPACT ON THE RESULTS. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT HAS IN THE PAST, OR WILL IN THE FUTURE, ACHIEVE PROFITS USING THESE RECOMMENDATIONS. NO REPRESENTATION IS BEING MADE THAT PRICE PATTERNS WILL RECUR IN THE FUTURE.

HYPOTHETICAL PERFORMANCE RESULTS HAVE MANY INHERENT LIMITATIONS, SOME OF WHICH ARE DESCRIBED BELOW. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL, OR IS LIKELY TO, ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN. IN FACT, THERE ARE FREQUENTLY SHARP DIFFERENCES BETWEEN HYPOTHETICAL PERFORMANCE RESULTS AND THE ACTUAL RESULTS SUBSEQUENTLY ACHIEVED BY ANY PARTICULAR TRADING PROGRAM.

ONE OF THE LIMITATIONS OF HYPOTHETICAL PERFORMANCE RESULTS IS THAT THEY ARE GENERALLY PREPARED WITH THE BENEFIT OF HINDSIGHT. IN ADDITION, HYPOTHETICAL TRADING DOES NOT INVOLVE FINANCIAL RISK, AND NO HYPOTHETICAL TRADING RECORD CAN COMPLETELY ACCOUNT FOR THE IMPACT OF FINANCIAL RISK IN ACTUAL TRADING. FOR EXAMPLE, THE ABILITY TO WITHSTAND LOSSES OR TO ADHERE TO A PARTICULAR TRADING PROGRAM, IN SPITE OF TRADING LOSSES, ARE MATERIAL POINTS WHICH CAN ALSO ADVERSELY AFFECT ACTUAL TRADING RESULTS. THERE ARE NUMEROUS OTHER FACTORS RELATED TO THE MARKETS, IN GENERAL, OR TO THE IMPLEMENTATION OF ANY SPECIFIC TRADING PROGRAM WHICH CANNOT BE FULLY ACCOUNTED FOR IN THE PREPARATION OF HYPOTHETICAL PERFORMANCE RESULTS AND ALL OF WHICH CAN ADVERSELY AFFECT ACTUAL TRADING RESULTS.