Understanding Cattle Trading: The Difference Between Fats and Feeder Cattle and the Cattle Cycle

Cattle trading is a complex and vital part of the agricultural economy, offering opportunities for both producers and investors to maximize profits by understanding market trends. Two key categories in cattle trading are feeder cattle and fats (also known as live cattle). Knowing the distinction between these two types of cattle and how the cattle cycle influences the market can provide valuable insights for those involved in livestock production and trading.

In this blog, we’ll break down the fundamentals of cattle trading, explain the difference between feeder cattle and fats, and explore how the cattle cycle impacts the market.

What is Cattle Trading?

Cattle trading refers to the buying and selling of cattle at different stages of their life cycle, typically with the goal of producing beef for human consumption. Traders and producers participate in cattle trading through spot markets, auctions, and futures contracts. Timing, price trends, and market conditions all play crucial roles in making profitable decisions.

Cattle trading happens at various points in the production chain, including the purchase of young calves, the feeding and growing process, and the final sale of market-ready cattle.

Feeder Cattle vs. Fats: What’s the Difference?

One of the key distinctions in cattle trading is between feeder cattle and fats (live cattle), as these terms refer to cattle at different stages of development. 

Feeder Cattle:

• Age and Weight: Feeder cattle are typically young, lightweight cattle that weigh between 600 and 800 pounds. These cattle are not yet fully grown and are raised on pasture or low-energy feeds until they are ready for the next phase.

• Purpose: Feeder cattle are sold to **feedlots**, where they will be fed a high-energy diet, primarily grain-based, to accelerate weight gain and improve meat quality.
• Trading Focus: Feeder cattle are often traded by ranchers or backgrounders who raise cattle after weaning and sell them to feedlots once they reach the desired weight. The price of feeder cattle is influenced by factors like feed costs, weather conditions, and market demand for beef.
• Investment: Traders and producers buy feeder cattle in hopes of selling them as finished, market-ready cattle (fats) at a higher price after they have been fed and fattened. Feeder cattle prices tend to fluctuate based on the availability of feed and the anticipated price of fats.

Fats (Live Cattle):

• Age and Weight: Fats, also known as live cattle, are fully grown cattle that weigh between 1,200 and 1,400 pounds. These cattle have been fed in feedlots for several months and are ready for slaughter.
• Purpose: Fats are sold to meat processors or packers to be processed into beef. The goal is to produce high-quality cuts of meat that meet consumer demand.
• Trading Focus: Fats are typically traded by feedlots to processors. The price of fats is influenced by factors such as consumer demand for beef, cattle inventory, and economic conditions. Live cattle prices tend to fluctuate based on beef supply and demand, the cost of finishing cattle, and global trade dynamics.
• Investment: Traders and investors focus on live cattle to capture price movements related to beef market conditions. Prices for live cattle tend to follow consumer demand trends, making them more sensitive to economic cycles, seasonal factors, and export markets.
  
  

• What Happens: During this phase, ranchers increase the size of their herds by keeping more heifers (female cattle) for breeding rather than selling them. This is typically driven by favorable market conditions, such as strong beef prices and lower feed costs.
• Market Impact: Cattle supply is relatively tight, leading to higher prices for fats and feeder cattle. Producers are more likely to expand operations to capitalize on strong market conditions.

• What Happens: As herds grow, more cattle enter the market, leading to an oversupply of feeder cattle and fats. This phase marks the height of the cycle, when the largest number of cattle are available for slaughter.

• Market Impact: Beef supply increases, leading to downward pressure on prices. Feeder and live cattle prices may start to soften as the market becomes saturated.

• What Happens: As prices fall due to oversupply, ranchers begin to reduce their herds, selling off cattle to avoid losses. Herds shrink, and the overall supply of cattle declines.

• Market Impact: Lower supply eventually leads to higher prices for fats and feeder cattle as fewer animals are available for slaughter. This phase can last several years as herd sizes gradually decrease.

• What Happens: The trough marks the lowest point in the cycle, where herd sizes are at their smallest. With reduced supply, cattle prices rise again, making it more profitable for ranchers to start expanding their herds, leading to a new expansion phase.

• Market Impact: Beef prices rise due to the limited supply of fats, benefiting those who held onto cattle during the contraction phase. Feeder cattle prices also increase as demand for replacement cattle grows.

• Feeder Cattle: During the expansion phase, feeder cattle prices tend to rise due to higher demand from feedlots. However, as the market becomes oversupplied in the peak phase, prices may fall as feedlots become cautious about overpaying for cattle that might not fetch high prices as fats.

• Fats (Live Cattle): Fats prices are typically high during the contraction and trough phases of the cattle cycle due to limited supply. When supply tightens and demand for beef remains strong, fats prices increase. Conversely, prices may fall during the peak phase when too many cattle are ready for slaughter, leading to an oversupply of beef.