CME Group live cattle and feeder cattle futures market prices have been quite volatile lately. Futures markets are supposed to anticipate what the cash market will be in the future.

Cattle cash and futures prices have been trading at record high levels in 2024 due to lower cattle and beef supplies and relatively strong demand. When futures prices are record high, volatility is also usually high because there are many fundamental supply and demand factors that can affect the market in the future.

Cattle and beef supply factors are well-documented, with 2024 likely being the sixth straight year of beef cow liquidation causing smaller calf crops and declining beef production. Lower supplies are supportive to prices. Beef demand has been stronger than some market analysts expected, but looking to the future there are beef demand factors that are causing enough uncertainty to cause the futures market jitters, particularly to the downside.

Some factors causing uncertainty include record high retail beef prices, high consumer credit card debt, inflation, elevated interest rates, foreign and U.S. stock market volatility, Russian-Ukraine and Middle East wars, other geo-political issues, U.S. presidential and congressional election uncertainties, managed money funds entering or exiting cattle futures markets, declining competing meat prices,  beef export market headwinds, and weather that affects forage and feed grains production and prices. Arbitrage causes futures and cash markets to be nearly the same at futures market contract maturity. 

Since there are many weights and grades of calves and feeder cattle marketed at many markets throughout the United States, what is the cash market that the feeder cattle futures market is attempting to anticipate?

The answer is the CME Feeder Cattle Index (Index). Since CME Group feeder cattle futures contracts are cash-settled rather than by actual delivery of cattle, all open contracts after termination of trading on the last Thursday of the contract month are settled with the Index.

The Index is based on feeder cattle auction, direct trade, video sale and internet sale transactions in Colorado, Iowa, Kansas, Missouri, Montana, Nebraska, New Mexico, North Dakota, Oklahoma, South Dakota, Texas and Wyoming for which the number of cattle, weighted average price and weighted average weight are reported by the USDA Agricultural Marketing Service (AMS). 

Individual market reports are available on the AMS website at: www.ams.usda.gov/market-news/livestock-poultry-grain#cattle.

The feeder cattle weights and USDA grades included in the Index are 700- to 899-pound (lb.) Medium and Large Frame #1 feeder steers, and 700 to 899 lb., Medium and Large and Large Frame #1-2 feeder steers. Feeder cattle identified as having predominately dairy, exotic or Brahma breeding and cattle from an origin outside the United States are excluded.

A detailed description of the Index specifications is available in the CME feeder cattle rulebook at: www.cmegroup.com/rulebook/CME.

The Index is a seven-day weighted average defined as the total dollars sold divided by the total pounds of eligible feeder steers sold. The CME posts a daily spreadsheet that shows the prices for eligible feeder steers at each market reported that day with the Index daily average price and the seven-day average price available at: www.cmegroup.com/market-data/reports/cash-settled-commodity-index-prices.html.

The 600- to 1000-lb. feeder steer and 100- to 599-lb. heifer calf contracts actual ending values are the Index price. The 100- to 599-lb. steer contracts receive a 10% premium, and the 600- to 1000- lb. heifer contracts receive a 10% discount. So, all calf and feeder cattle LRP contracts are affected by the Index.