Introduction
Livestock commodities cover markets for animals raised for the food supply. Cattle and hogs are the main livestock products traded through U.S. futures markets. These markets connect farmers, feedlots, meat processors, food companies, traders, and investors.
Supply and demand drive livestock prices. However, livestock markets have an extra challenge: raising animals takes time. Producers cannot expand a herd overnight. Animals need feed and time to reach market weight, while disease and severe weather can disrupt production.
Individual investors usually gain livestock exposure through futures or futures-based products. As a result, understanding both the animals and the financial contracts is important.
What are livestock commodities?
Livestock commodities are standardized futures contracts linked to animals raised mainly for meat production. Exchanges set contract rules for factors such as quantity, quality, and settlement. As a result, buyers and sellers can trade livestock price exposure under common terms.
Livestock belongs to the broader commodity market. Still, livestock differs from metals and energy because animal production follows biological cycles. Farmers need time to breed, raise, and feed animals before they can bring them to market.
Therefore, supply often reacts slowly when prices or demand change. This delay can contribute to large price swings.
Main livestock commodity markets
The major exchange-traded livestock markets focus on cattle and hogs. Each contract represents a different part of the meat production cycle.
Live cattle
Live cattle contracts relate to cattle that have reached market weight and are close to slaughter. Beef demand, cattle supply, feed costs, and processing conditions can all affect prices.
Feeder cattle
Feeder cattle are younger cattle that typically enter feedlots before reaching their final market weight. Therefore, both expected cattle prices and feed costs can affect their value.
Lean hogs
Lean hog futures provide exposure to hog prices. Key price drivers include pork demand, hog supply, feed costs, processing capacity, disease, and international trade.
What drives livestock prices?
Livestock prices reflect the balance between the number of animals coming to market and demand for meat. Several factors can shift that balance.
Herd and animal supply
The number and age of cattle and hogs help determine future meat supply. Because raising animals takes time, breeding and production decisions made today can affect prices months or even years later.
Feed costs
Corn, soybeans, and other agricultural commodities are major livestock feed sources. When feed prices rise, farmers face higher production costs. Consequently, they may change herd sizes, feeding plans, or other production decisions.
Consumer demand
Demand can change with household income, restaurant activity, retail prices, and consumer preferences. In addition, consumers may switch between beef, pork, poultry, and other foods when relative prices change.
Disease and animal health
Disease outbreaks can reduce production and disrupt trade. They can also change consumer demand. As a result, animal health problems can create considerable uncertainty in livestock markets.
Weather
Extreme heat, cold, drought, and storms can affect animal health, transportation, pasture, and feed supplies. For example, drought can reduce pasture quality and raise feed costs at the same time.
Trade
Foreign demand can be an important source of meat sales. Therefore, tariffs, import restrictions, disease-related trade bans, exchange rates, and changes in overseas demand can affect domestic livestock prices.
Why livestock supply responds slowly
Many manufacturers can increase production by running equipment longer or adding shifts. Livestock producers face a different constraint because animals need time to grow.
Cattle, in particular, have a long production cycle. If farmers decide to expand their herds, the extra beef supply does not reach the market immediately. On the other hand, reducing breeding herds today can limit supply in future years.
Hog production cycles are shorter than cattle cycles, but farmers still cannot change supply instantly. Because of these delays, livestock markets can move through periods of tight supply followed by periods of greater availability.
How livestock futures are used
Producers and commercial buyers use livestock futures to manage price risk. For example, a cattle producer may worry that prices will fall before the animals are ready for sale. A meat buyer may instead worry that prices will rise.
Futures allow these businesses to manage some of that future price exposure before they buy or sell the physical animals. Meanwhile, traders and investors can use the same markets to gain exposure to livestock price movements.
However, futures involve leverage and expire on set dates. Direct futures trading therefore carries additional risks beyond predicting whether livestock prices will rise or fall.
Ways to invest in livestock commodities
Most investors cannot gain practical exposure by owning physical livestock. Raising animals is a business that requires land, feed, labor, veterinary care, transportation, and other resources.
Instead, investors can use livestock futures or exchange-traded products that hold futures. Broader agricultural or commodity funds may also include livestock alongside crops, energy, and metals.
Another option is to buy shares of companies involved in meat processing, animal nutrition, agricultural equipment, or other parts of the supply chain. However, these are stocks rather than direct livestock investments. Their returns depend on company profits, costs, management, and other business factors as well as commodity conditions.
For a broader comparison, our guide to how to invest in commodities explains the differences between futures, funds, physical assets, and commodity-related stocks.
Livestock versus crop commodities
| Characteristic | Livestock | Crops |
|---|---|---|
| Production cycle | Breeding, raising, and feeding animals | Planting, growing, and harvesting crops |
| Major weather effects | Animal health, pasture, feed supply, transportation | Planting, crop development, yields, harvests |
| Important input connection | Feed grains and oilseeds | Fertilizer, fuel, seeds, land, labor |
| Biological risks | Animal disease and herd cycles | Crop disease, pests, drought, frost |
| Typical investor access | Futures and futures-based products | Futures and futures-based products |
These markets are closely connected. For example, higher corn and soybean prices can increase livestock feed costs. At the same time, changes in cattle and hog populations can affect demand for those crops.
Risks of livestock commodity investing
Livestock markets can be volatile because supply adjusts slowly while unexpected events can change conditions quickly. For instance, disease outbreaks, extreme weather, trade restrictions, higher feed costs, and shifts in consumer demand can all move prices.
Futures add another layer of risk through leverage, margin requirements, and expiration dates. In addition, futures-based funds may produce returns that differ from livestock price movements because fund managers must replace expiring contracts over time.
Livestock-related companies carry different risks. Their results can depend on management decisions, debt, labor costs, profit margins, regulation, and broader stock-market conditions.
For that reason, investors should consider these issues alongside the wider risks of commodity investing.
Key takeaways
- Livestock commodity markets mainly include cattle and hog futures.
- Animal supply, feed costs, consumer demand, disease, weather, and international trade can all influence prices.
- Because animals take time to breed and grow, livestock supply cannot react immediately to changing prices.
- Livestock and crop markets are closely linked because corn, soybeans, and other crops provide important animal feed.
- Individual investors usually gain exposure through futures or futures-based products rather than physical animals.
- Livestock futures can be volatile and add risks such as leverage and contract expiration.