Feeder Cattle vs Live Cattle: Two CME Futures Contracts Covering the Full Beef Supply Chain

Feeder cattle and live cattle defined
Feeder cattle are beef animals — typically weighing 600–900 pounds — that have completed the grazing phase and are ready to enter a feedlot for the final grain-fed finishing period. Live cattle are those same animals after the feedlot phase: fully finished animals weighing 1,200–1,500 pounds, ready for slaughter. The CME Group operates separate futures contracts for each stage — Feeder Cattle (ticker: GF) and Live Cattle (ticker: LE) — allowing producers, feedlot operators, and packers to manage price risk across the entire beef production cycle.

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Table of Contents

1. What Are Feeder Cattle and Live Cattle? The Biological Difference
2. The Beef Production Cycle: Birth to Packer
3. Feeder Cattle Futures (GF): Contract Specifications
4. The CME Feeder Cattle Index: What Your Futures Contract Actually Settles To
5. Live Cattle Futures (LE): Contract Specifications
6. Why One Settles in Cash and the Other in Physical Delivery
7. Head-to-Head Comparison Table
8. The Cattle Crush Spread
9. How the USDA Cattle on Feed Report Moves Both Markets
10. Frequently Asked Questions
11. Key Takeaways

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What Are Feeder Cattle and Live Cattle? The Biological Difference

When a calf is born on a ranch in Kansas, it weighs around 80 pounds. By the time it enters a packing plant, it weighs 1,300 pounds — and somewhere in between, its price was locked in on the Chicago Mercantile Exchange. There are two separate futures contracts for that journey: one for the feeder stage, one for the finished animal.

The biological staging of beef production creates two distinct economic commodities:

Feeder cattle are young beef animals — steers (castrated males) or heifers (young females) — that have completed the background grazing phase and are ready to enter a commercial feedlot. The defining characteristic is weight range: 600–900 pounds (though the CME specifications allow a range of 600–849 lbs for Medium and Large Frame #1 steers, the most commonly traded specification).

At this weight, a feeder animal has grown to a size where efficient grain feeding becomes economical. Below approximately 500 lbs, the animal is still developing skeletal and organ systems and does not convert grain to muscle as efficiently. Above 900 lbs entering a feedlot, the animal will reach slaughter weight quickly but has foregone some of the potential weight-gain efficiency.

Live cattle (also called “fed cattle” or “fat cattle”) are the same animals after completing the feedlot phase — grain-finished and ready for slaughter. CME Live Cattle contract specifications focus on animals weighing 1,050–1,500 lbs, with the ideal slaughter weight range being approximately 1,200–1,400 lbs.

The price relationship between feeder cattle and live cattle — and the cost of grain consumed in between — defines feedlot economics. This relationship is formalised in the cattle crush spread, explained in section 8.

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The Beef Production Cycle: Birth to Packer

Understanding why two futures contracts exist requires understanding the full production cycle and who bears price risk at each stage.

Phase 1: Cow-Calf Operation (0–8 months)

Who: Cow-calf ranchers (often called “mama cow operations”)

Beef cows are bred to produce calves. A typical beef cow produces one calf per year. The calf is born in late winter/spring (January–March is the primary calving season for spring-born calves). The calf nurses and then grazes with its mother until weaning at approximately 6–8 months, reaching 450–600 lbs.

Risk exposure: The cow-calf operator’s risk is primarily the value of the weaned calf. If feeder cattle prices fall between breeding and weaning, the operator receives less for their calf than they projected. This risk is not easily hedged with CME futures because the animal at weaning (400–550 lbs) is lighter than the deliverable specification for the Feeder Cattle contract (600–849 lbs). The cow-calf producer has limited direct hedging tools.

Phase 2: Stocker/Backgrounding Operation (8–14 months)

Who: Stocker operators, often on rented pasture

Lighter calves (450–600 lbs at weaning) are often placed with stocker operators who graze them on pasture, crop aftermath (post-harvest stubble fields), or wheat pastures. The stocker phase adds 150–250 lbs of weight through forage-based feeding, which is cheaper per pound gained than feedlot feeding.

The stocker operator buys lightweight calves and sells finished stockers (600–850 lbs) into feedlots. They bear the risk of: calf purchase price, forage costs, and the feeder cattle price they’ll receive at sale. Stocker operators can hedge their sale price using the CME Feeder Cattle futures contract, since their animals will fall within the deliverable weight range.

Phase 3: Feedlot Finishing (14–18 months)

Who: Commercial feedlots (operations of 1,000+ head; major commercial lots hold 25,000–150,000+ head)

The feedlot operator buys feeder cattle (600–849 lbs) from stockers or directly from cow-calf operators. The animals are fed a high-energy diet — primarily corn, distiller’s grain, and roughage — for 3–5 months until they reach slaughter weight (1,200–1,400 lbs). The typical feedlot animal gains approximately 3.0–3.5 lbs per day on feed.

The feedlot operator has simultaneous exposure to three market prices:
1. The feeder cattle price (what they paid to buy the animal)
2. The corn price (what they pay to feed it)
3. The live cattle price (what they’ll receive when they sell it to a packer)

The feedlot operator hedges live cattle price risk using CME Live Cattle (LE) futures and may also hedge corn price risk using CBOT corn (ZC) futures.

Phase 4: Packer Processing

Who: Beef packing companies (JBS, Tyson Foods, Cargill/Excel, National Beef — the “Big Four” packers that process approximately 85% of US fed cattle)

Packers buy live cattle from feedlots (on formula, forward contract, or cash market) and process them into carcasses, primal cuts, and packaged beef. Packers’ risk is the spread between cattle purchase price and wholesale beef prices — managed through forward selling to retailers and food service buyers.

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Feeder Cattle Futures (GF): Contract Specifications

Specification	Details
Exchange	CME Group (Chicago Mercantile Exchange)
Ticker	GF
Contract Size	50,000 lbs (approximately 55–60 steers)
Pricing Unit	US cents per pound
Minimum Price Fluctuation	$0.00025/lb ($12.50/contract)
Deliverable Grade	Medium and Large Frame No. 1–2 Feeder Steers, 600–849 lbs
Settlement Method	Cash settled to the CME Feeder Cattle Index
Contract Months	January, March, April, May, August, September, October, November
Last Trading Day	Last Thursday of the contract month

The 50,000 lb contract size is an important point: the contract represents approximately 55–60 steers at the center of the deliverable weight range (around 750 lbs). A feedlot operator with 1,000 head of feeder cattle to price would need approximately 15–16 contracts to hedge a full position.

Cash settlement means there is no physical delivery of cattle against the Feeder Cattle contract. The contract settles to the CME Feeder Cattle Index — a calculated value described in the next section. This is different from the Live Cattle contract, which allows physical delivery.

Delivery months reflect seasonality: Feeder cattle placements into feedlots peak in late summer and fall (August–November) as spring-born calves are weaned and moved to feedlots. The absence of February, June, July, and December contract months reflects the lower feeder market activity in those periods.

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The CME Feeder Cattle Index: What Your Futures Contract Actually Settles To

The CME Feeder Cattle Index is not a futures price — it is a daily calculated value representing the weighted average price of actual feeder cattle sales in physical markets across the United States.

How the index is calculated:
The CME licenses the feeder cattle price data from the USDA’s Agricultural Marketing Service (AMS). USDA AMS collects feeder cattle sale prices from livestock auctions and video/internet sale platforms across major feeder cattle trading states (Kansas, Oklahoma, Texas, Nebraska, Colorado, South Dakota, and others). These reported prices are weighted by volume and adjusted for weight differentials to produce a single daily index value.

Why cash settlement to an index?

The index makes more sense for feeder cattle than physical delivery because:

1. Geographic dispersion: Feeder cattle are bought and sold at hundreds of livestock auctions across the Great Plains and Mountain West. There is no single delivery point equivalent to Cushing, Oklahoma for WTI oil.
2. Grade variability: Individual animals vary in frame size, muscle condition, and health status in ways that make standardised physical delivery impractical at scale.
3. Convergence: The index tracks cash market prices accurately, so the futures contract price converges to actual physical market values as delivery approaches — giving the contract its hedging effectiveness without the logistics of physical delivery.

Basis in feeder cattle markets: The difference between the CME GF futures price and the local cash price a feedlot operator actually faces is called basis. Basis reflects local supply-demand conditions relative to the national market represented by the index. Feedlot operators in a region with abundant feeder cattle supply face a weaker local price (negative basis); regions with tight supply face stronger prices (positive basis). Managing basis risk is a key skill in feeder cattle hedging.

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Live Cattle Futures (LE): Contract Specifications

Specification	Details
Exchange	CME Group (Chicago Mercantile Exchange)
Ticker	LE
Contract Size	40,000 lbs (approximately 30–33 head at ~1,300 lbs)
Pricing Unit	US cents per pound
Minimum Price Fluctuation	$0.00025/lb ($10.00/contract)
Deliverable Grade	USDA Yield Grade 3 or better, Live Weight 1,050–1,500 lbs
Settlement Method	Physical delivery at approved delivery points in Kansas, Nebraska, Colorado, Texas, Iowa
Contract Months	February, April, June, August, October, December
Last Trading Day	Last business day of the contract month

The 40,000 lb contract size is somewhat smaller than the Feeder Cattle contract. At typical slaughter weights of 1,300 lbs, the contract represents approximately 30–33 head.

Physical delivery distinguishes the Live Cattle contract from the Feeder Cattle contract. A long (buyer) who holds the contract through the delivery period must accept delivery of actual cattle at approved feedlots and delivery points in the major cattle states. A short (seller) who holds through delivery must provide specification-compliant cattle.

In practice, the vast majority of Live Cattle contracts are closed out or rolled before delivery. But the physical delivery mechanism creates the convergence between futures prices and actual cash market prices — traders know that if futures deviate too far from cash, arbitrageurs will exploit the gap through actual delivery.

Delivery months reflect the cattle marketing calendar: February, April, June, August, October, and December delivery months correspond to expected feedlot marketing periods for cattle placed approximately 4–6 months earlier.

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Why One Settles in Cash and the Other in Physical Delivery

The settlement method difference between the two contracts reflects the physical reality of each market.

Live Cattle — Physical Delivery: A finished, slaughter-ready steer at 1,300 lbs is a relatively standardised product. There are approved delivery points (feedlots and auction facilities) near major packing plants in Kansas, Nebraska, Texas, Iowa, and Colorado. A large commercial feedlot can deliver specification-grade animals reliably. Physical delivery creates a direct anchor between futures prices and the actual beef supply chain — if futures prices are too high relative to cash, packers can buy futures and take delivery; if futures are too low relative to cash, feedlots can sell futures and deliver.

Feeder Cattle — Cash Settlement: A feeder-weight animal at 650–800 lbs is far less standardised and is traded at hundreds of regional auction markets scattered across the Great Plains. There is no practical single delivery point. The alternative — settling to a carefully constructed index of actual cash market prices — achieves the same convergence goal without requiring centralised physical delivery infrastructure.

This settlement difference has a practical implication for hedgers:

• A feedlot operator hedging feeder cattle purchases using GF futures needs to understand basis risk between the CME Feeder Cattle Index and their local auction prices. The hedge ratio and expected basis are critical inputs.
• A feedlot operator hedging live cattle sales using LE futures faces less basis risk because the physical delivery mechanism keeps the futures price closely tethered to the cash market in approved delivery areas.

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Head-to-Head Comparison Table

Feature	Feeder Cattle (GF)	Live Cattle (LE)
Exchange	CME Group	CME Group
Ticker	GF	LE
Animal Stage	Pre-feedlot (grazing finished)	Feedlot finished (slaughter ready)
Weight Range	600–849 lbs	1,050–1,500 lbs
Contract Size	50,000 lbs (~55–60 head)	40,000 lbs (~30–33 head)
Settlement	Cash (CME Feeder Cattle Index)	Physical delivery
Delivery Months	Jan/Mar/Apr/May/Aug/Sep/Oct/Nov	Feb/Apr/Jun/Aug/Oct/Dec
Primary Hedger	Stocker operators, feedlot operators	Feedlot operators, packers
Key Price Driver	Corn prices (inverse), breeding herd size	Beef demand, packer margins, fed cattle supply
Time to Market (from placement)	Contract price = today’s value, marketing in 4–6 months	Reflects current slaughter-ready value

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The Cattle Crush Spread

The cattle crush spread (sometimes called the cattle feeding margin or gross feedlot margin) is the theoretical profit or loss from purchasing feeder cattle, feeding them to slaughter weight, and selling the finished live cattle — expressed in terms that can be traded using the futures contracts.

The formula:

Cattle Crush = (Live Cattle Price × 1,400 lbs) − (Feeder Cattle Price × 750 lbs) − (Corn Cost × bushels consumed)

In futures market terms, using approximate conversion factors:

Crush Value = (LE price × 400 cwt) − (GF price × 7.5 cwt) − (ZC price × 50 bushels)

Where:
– LE is in cents per pound
– GF is in cents per pound
– ZC (CBOT corn) is in cents per bushel
– The 50 bushels of corn represents an approximate corn consumption per head during the feedlot phase (actual consumption varies by ration, days on feed, and individual animal performance)

Example (simplified):
– Feeder steer purchased at 750 lbs × $1.60/lb = $1,200 cost
– Corn consumed: ~50 bushels × $5.00/bushel = $250 feed cost
– Other costs (yardage, vet, labour): approximately $100/head
– Total cost: $1,550/head
– Live steer sold at 1,400 lbs × $1.20/lb = $1,680 revenue
– Gross margin: $130/head

This example shows positive feeding economics. When the crush is negative — feeder purchase price and feed costs together exceed the expected live cattle value at slaughter — feedlots lose money. Rational feedlot operators reduce placements when the crush is persistently negative, which reduces future live cattle supply and eventually supports live cattle prices.

The cattle crush as a tradeable spread: Sophisticated feedlot operators and commodity traders can trade the crush as a spread position — buying Live Cattle futures (the output) while selling Feeder Cattle futures (the input) and simultaneously buying Corn futures (the feed cost). This spread trade locks in a specific feeding margin at the time of placement, converting the feedlot operation’s uncertain economics into a known outcome.

Why corn prices matter so much: Corn represents approximately 40–50% of feedlot variable cost. A $1/bushel increase in corn prices on the CBOT directly increases per-head feed cost by approximately $50–60. This is why the corn-to-cattle feeding margin calculation is central to feedlot operator decisions.

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How the USDA Cattle on Feed Report Moves Both Markets

The USDA’s monthly Cattle on Feed report — released on the third Friday of each month at 3:00 PM Eastern — is the most market-moving regular statistical release for both CME Live Cattle (LE) and Feeder Cattle (GF) futures.

What the Report Contains

The report publishes four metrics for feedlots of 1,000+ head capacity in 13 key states:
1. Total Cattle on Feed (inventory at start of month)
2. Placements (cattle placed into feedlots during the month)
3. Marketings (cattle shipped to slaughter during the month)
4. Other Disappearances (deaths and other exits)

How It Moves Live Cattle Prices

Placements are the key metric for Live Cattle futures. Cattle placed into feedlots in a given month will be marketed (slaughtered) approximately 4–6 months later. So October placements affect February–March Live Cattle supply.

• Placements above analyst estimates → more live cattle coming to market in 4–6 months → bearish for deferred LE contracts (those delivery months)
• Placements below analyst estimates → tighter future supply → bullish for deferred LE contracts
• Marketings above estimates → more beef supply hitting packers this month → bearish for nearby LE contracts

How It Moves Feeder Cattle Prices

The report’s impact on Feeder Cattle (GF) is more nuanced:

• High placements = more feedlots have been buying feeder cattle = feeder cattle supply in the physical market has been drawn down = fewer feeders available for purchase now → slightly bullish for GF prices
• But high placements also signal strong feedlot demand — feedlots were aggressive buyers, which supports GF prices from a demand perspective too
• Total On Feed above year-ago signals that feedlots are already full, which can dampen their appetite for additional feeder cattle purchases → bearish for GF prices

The Reaction Mechanism

CME livestock futures are closed during the 3:00 PM release. Electronic trading (CME Globex) resumes after the release, and the first electronic prices show the market’s initial reaction. By the next morning’s regular session open, the market has typically incorporated the report’s implications.

The magnitude of price reaction depends on the size of the surprise relative to analyst pre-report estimates. A placements figure 5% above the average estimate will move prices more than one 1% above estimate.

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Frequently Asked Questions

Can a small feedlot operator use CME futures to hedge?

Yes, but with some friction. A 500-head feedlot placing cattle weighing an average 750 lbs has 375,000 lbs of feeder cattle exposure — roughly 7.5 Feeder Cattle contracts (at 50,000 lbs each). CME contracts are theoretically accessible to any trader, but basis risk (the difference between the CME index price and local auction prices) requires local market knowledge to manage properly. Many smaller operators use Over-the-Counter (OTC) instruments or price-later forward contracts from livestock suppliers rather than CME futures directly.

What is the “Choice-Select spread” and how does it relate to Live Cattle futures?

The Choice-Select spread is the price difference between USDA Choice grade beef and Select grade beef. Both grades are deliverable against the CME Live Cattle contract (at different discounts), but the Choice-Select spread tells processors and feedlots about relative demand for quality beef. A widening Choice-Select spread (Choice commanding a bigger premium over Select) is positive for feedlots because it rewards higher-marbling cattle, which tend to be fed longer on high-energy rations.

Why do feeder cattle prices sometimes move differently from live cattle prices?

They represent different points in time in the same supply chain. Feeder cattle prices today reflect current expectations about the feedlot economics over the next 4–6 months. If corn prices are falling (cheaper feed costs), feedlot demand for feeder cattle may increase even if live cattle prices are flat — pushing GF higher while LE stays stable. If there is a disease scare affecting packers’ ability to process cattle, live cattle prices can fall (more supply than demand at the packer level) while feeder cattle prices remain firm (the problem is at the slaughter end, not the feeding end).

How do cattle markets relate to beef retail prices?

The chain is long and involves significant margin layers. The live cattle price at slaughter is converted to the dressed weight (carcass) price — typically the live price multiplied by a dressing percentage of approximately 62–63%. Carcass is then broken into primal cuts, which are sold to wholesale buyers (grocery chains, food service distributors) at boxed beef prices. Retail prices reflect boxed beef plus retailer margin, shrink, and handling. Live cattle prices and retail beef prices move in the same direction over time, but retail prices lag futures prices by weeks to months.

What is a forward contract in livestock and how is it different from a futures hedge?

A forward contract is a bilateral agreement between a feedlot and a packer (or between a stocker and a feedlot) to deliver a specified number of cattle at a specified date and price. Unlike CME futures, forwards are not standardised, not exchange-traded, and not easily offset before maturity. Most large packer purchases are negotiated through a mix of spot (cash) market purchases, formula pricing (tied to futures or packer grid prices), and forward contracts. CME futures are primarily used by feedlots to hedge price risk on their inventory, not by packers (who use their own forward contract and formula pricing systems).

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Key Takeaways

• Feeder cattle (600–849 lbs) and live cattle (1,050–1,500 lbs) represent sequential stages in the beef production cycle; separate CME futures contracts allow price risk hedging at each stage.
• The Feeder Cattle contract (GF) covers 50,000 lbs and settles in cash to the CME Feeder Cattle Index, which is calculated from USDA-reported physical auction prices; the Live Cattle contract (LE) covers 40,000 lbs and settles with physical delivery at approved delivery points.
• Cash settlement for GF reflects the geographic dispersion of feeder cattle sales (hundreds of regional auctions); physical delivery for LE reflects the concentration of slaughter-weight cattle near major packing plants in Kansas, Nebraska, and Texas.
• The cattle crush spread — the difference between live cattle revenue and feeder cattle plus feed costs — is the central economic measure of feedlot profitability and can be traded as a spread position using LE, GF, and CBOT Corn (ZC) contracts simultaneously.
• The USDA Cattle on Feed report (third Friday of each month, 3:00 PM Eastern) is the primary market-moving report for both LE and GF; placements is the most forward-looking metric, signalling live cattle supply 4–6 months ahead.
• Corn prices are feedlots’ largest variable cost — approximately $50–60 per head for each $1/bushel move in corn — making the CBOT Corn price a critical input to both the crush spread calculation and feedlot placement decisions.