Live Cattle Futures Contract Specifications

The live cattle futures contract specifications define exactly what a producer or trader is buying or selling on the CME: contract size, weight range, quality grades, delivery locations, and the dollar value of a one-cent price move. Understanding these details is essential for hedging, position sizing, and knowing what will be delivered or received.

Contract size and lot structure

The live cattle futures contract at the CME represents 40,000 pounds of live cattle. This is standardized and fixed; every contract, regardless of expiration month, is for exactly 40,000 lbs.

In practical terms, one contract typically covers 27–38 head of finished cattle, depending on average weight. A 1,200-lb steer is the conceptual “unit,” so 40,000 ÷ 1,200 ≈ 33 head. However, delivered cattle will vary; the contract accommodates this by allowing weight within a range.

A large feedlot with 10,000 head might hedge with 250–300 contracts. A cow-calf operator with a small group might use one or two contracts on a forward basis, accepting that the physical delivery won’t match exactly.

Grade specifications and price adjustments

The contract requires USDA Choice or Select grade cattle—steers or heifers. Within these grades, quality and yield adjustments apply.

Prime cattle (above Choice) receive a premium. Good-grade cattle (below Select) are accepted at a discount. Cattle grading as Utility or Cutter are rarely acceptable; they are heavily discounted if delivered at all.

The CME also specifies yield adjustments based on backfat and ribeye area. Leaner cattle (less backfat, larger ribeye) receive a small premium; fatter cattle are slightly discounted. These grid systems are designed to reflect what packers actually pay in the cash market.

In practice, most hedgers focus on the Choice/Select midpoint—the assumed standard—because that is where spot prices cluster. Deviations for grade and yield are real but typically small (pennies per pound) relative to the base contract price.

Weight specifications and penalty structure

The contract specifies a weight range of 1,050–1,400 lbs per head. Cattle delivered outside this range are subject to price adjustments.

• Under 1,050 lbs: Discount of typically 1.5–2.5¢ per pound below contract weight.
• Over 1,400 lbs: Discount of typically 1–2¢ per pound over 1,400 lbs.

This incentivizes delivery of cattle in the “sweet spot” of modern packer preferences—large steaks, good proportions, not overfinished. Cattle that are too light are less profitable per head to process; cattle that are too heavy carry excess fat that packers trim away.

The 40,000-lb contract contains this range implicitly: if all 30 head are 1,200 lbs, the contract is exactly 36,000 lbs, which is acceptable. If they average 1,300 lbs (39,000 lbs), a small discount applies.

Delivery points and location basis

Deliverable locations include:

• Omaha, Nebraska (primary; the CME contract price reference)
• Kansas City, Missouri
• Sioux Falls, South Dakota
• Amarillo, Texas

Each location has a delivery differential—a fixed price adjustment to compensate for the cost of shipping to/from Omaha. For example, Amarillo might trade at −$1.50/cwt (cheaper to deliver there from Texas ranches); Sioux Falls might trade at −$0.50/cwt.

These differentials are published and stable, allowing producers to estimate their local basis relative to the futures contract. A feedlot in central Texas can reliably calculate that the Amarillo delivery point is more economical and predictable than Omaha.

Contract months and seasonal liquidity

Live cattle futures trade six months per year: February, April, June, August, October, December.

Liquidity is highest in the nearby (soonest delivery) and deferred (3–6 months out) contracts. The Feb contract trades most heavily January and early February; the Apr contract becomes liquid in February and March, and so on.

For a feedlot finishing cattle in July, the June contract is the most relevant (cattle finish close to delivery time). If placing cattle in November for June delivery, the April contract might be more liquid; traders must balance the convenience of a liquid contract month against the delivery timing of the actual cattle.

The contract specifies a 21-day delivery window before the last trading day and 7 days after, giving operators some flexibility to time physical settlement with their operational flow.

Margin and minimum price move

The minimum price fluctuation (tick) is $0.00025 per pound of live weight.

On a 40,000-lb contract, this equals:

40,000 lbs × $0.00025/lb = $10 per tick

In trader language, a 1-cent move in the cattle price (from $132.00 to $133.00) is worth:

40,000 lbs × $0.01/lb = $400 per contract

Margin requirements (set by the broker) are typically $1,000–2,000 per contract, meaning a move of just 2.5–4 cents can trigger a margin call on a single contract. This leverage attracts traders but exposes small producers who hedge without margin discipline.

Feeder cattle contract (separate CME contract)

The CME also trades a Feeder Cattle contract (symbol FC), which is a separate instrument for cattle not yet ready for slaughter—typically 600–800-lb calves destined for the feedlot.

The feeder contract is 50,000 lbs live weight per contract (roughly 60–70 head of lighter cattle). It trades the same months as live cattle. The relationship between feeder and live cattle prices is central to feedlot margins, though the two contracts trade independently based on their own supply-and-demand dynamics.

Hedging structure and price convergence

A feedlot operator who sells live cattle futures locks in an expected sale price 3–6 months ahead. As the contract approaches expiration, the futures price converges to the cash (spot) market price because delivery must be settled at fair value. In the last trading days, the difference between the futures and cash price narrows to nearly zero plus transaction costs.

This convergence is why futures contracts provide an effective hedge: they control the price. The residual risk is basis (the difference between local cash and futures), not the absolute price.

Delivery logistics and cash settlement

Live cattle futures typically involve physical delivery: actual cattle are delivered by the seller to a designated feedlot or packing plant, inspected for grade and weight, and priced according to the settlement formula.

Some contracts offer cash settlement as an alternative (settling the difference in money rather than physical delivery), but live cattle contracts are predominantly physical. The threat of delivery is real, and sellers must account for the cost of moving cattle to the delivery point.

See also