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Due to limited supply and high demand, now is the perfect time to invest in cattle. The limited supply means you can expect higher profits than ever before. As an investor, you try to find the best investment opportunities for your needs. Investing in cattle could be that opportunity for you, especially since you have the option to invest in live cattle or cattle futures. In both cases, you may be able to expect to rake in double or even triple the profits that investors have enjoyed in the last several years.
How to Invest in Live Cattle
When investing in live cattle, you need to look at it as any other serious investment, meaning you must start with a business plan. The plan should include the type of cattle you want to purchase and all the associated costs.
In regards to choosing a type of cattle to purchase, you can select from beef or dairy cows. If you want to sell beef cows, Angus cows go for a high price, making them a great option. On the other hand, Holstein-Friesian milking cows are a great option if you want to invest in dairy cows. These cows produce an average of 8-10 gallons of milk per day, and they thrive in grass pastures.
You also need to think of breeding to keep your investment empire going. Get a bull with a below average birth weight EPD to minimize risks during breeding.
Once you decide what type of cattle you want to purchase, you should look at the average market prices for cattle in your area. USDA auction summaries are a good tool for figuring how much you will spend on cattle.
Next, you need to think of the additional costs. You will need to house the cattle, either on your own land or on rental land. You will also have to pay to feed the cattle and to provide the cattle with healthcare. In addition, you will need nutrients to keep your cows healthy and ready for either meat production or milking.
Once you have your costs figured out, you will need to decide how to purchase your cattle.
Purchasing via Private Treaty vs. Public Auction
You have two options for purchasing cattle: via a private treaty or a public auction. You can often get great deals if you go with an auction, but there is a drawback: You only see them on the stage, and sellers often hide defects and other issues. On the other hand, you can see cows in their natural habitat when you purchase them via private treaty. These cows are usually healthier as well, making it worth paying extra money to protect your investment.
Things to Consider When Purchasing Live Cattle
Before you jump in and buy live cattle, there are a few things you need to consider to get the best cattle for your investment.
First, always see the cattle in person before making a purchase. As enticing as an online purchase might be, you need to examine the cattle in person before signing on the dotted line.
Second, always consider the seller’s reputation before making a purchase. Sellers earn good reputations by living up to their word and providing buyers with excellent cattle.
Finally, you need to make sure the animal is structurally sound without any defects. This is an investment, and any issues the cow has will hurt that investment.
Investing in Cattle Futures
Investing in cattle futures is another excellent option. If you do this, you can purchase feeder or live cattle futures. Let’s take a look at how you will accomplish this.
How to Invest in Cattle Futures
Futures for live and feeder cattle are traded on the Chicago Mercantile Exchange. Live cattle futures have the contract ticker symbol LC and the electronic ticker of LE. This market isn’t as volatile as some other futures markets because parties can hedge their various market positions to cut down on uncertainty.
If you want to take part in this market, it is open for trading from 9:05am to 1pm CST. It has an open and electronic outcry.
Live cattle futures trade in February, April, June, August, October, and December.
The feeder cattle market has a contract ticker symbol of FC and an electronic ticker of GF. It has the same trading hours as live cattle, and it also has an electronic and open outcry.
You can participate in this market in January, March, April, May, August, September, October, and November.
Costs and Risk to Consider
The contract size for live cattle is 40,000 pounds, while the contract size for feeder cattle is 50,000 pounds. Both have a price fluctuation of $0.00025 per pound. Because these contracts are so sizable, it is important to understand the risks that come with trading cattle futures.
Futures markets go up and down, so you are not guaranteed to get a return on your investment and you might lose money. Of course, you can also end up making a great deal, depending on the investment. That is the nature of trading futures.
There are also some unique risks that come with contracts for live cow futures. Consumer demand, potential diseases, and transportation costs all increase the risks of this investment.
It is important to choose the type of cattle investment that is right for your portfolio. If you want to assume some risk with the chance of raking in a large windfall, futures are a good decision. If you want a solid investment that can bring you money for years to come, consider investing in dairy or beef cows so you can continue to churn out a profit.
Author: Jeff Gitlen