Livestock and Soft Commodities Basics

Livestock and soft commodities represent distinct segments of the commodities market, each with unique supply cycles, weather dependencies, and geographic concentrations. These markets are smaller than energy and metals but carry outsized importance for food security and agricultural economies. Understanding their fundamentals helps investors evaluate inflation inputs, agricultural ETF exposures, and global supply chain risks.

Livestock Markets: Cattle and Hogs

Three primary livestock contracts trade on the CME (Chicago Mercantile Exchange): live cattle, feeder cattle, and lean hogs. Each responds to different economic factors and production timelines.

Live Cattle

Live cattle contracts represent finished cattle ready for slaughter, typically weighing 1,100-1,400 pounds. These animals have completed the feedlot phase and are sold to meatpackers. Contract specifications call for delivery of 40,000 pounds of cattle. Prices in late 2024 ranged from $180-$195 per hundredweight (cwt), translating to roughly $1,980-$2,730 per head.

Feeder Cattle

Feeder cattle are younger animals weighing 650-849 pounds that enter feedlots for finishing. The price spread between feeder and live cattle reflects feeding costs and profit margins for cattle feeders. When corn prices rise, feeder cattle prices typically fall because higher feed costs compress feedlot margins.

Lean Hogs

Lean hog contracts represent 40,000 pounds of hog carcasses. Hog production cycles are shorter than cattle—approximately 10-11 months from breeding decision to market-ready hog versus 2-3 years for cattle. This faster cycle means hog supply responds more quickly to price signals. Lean hog prices in 2024 ranged from $70-$90 per cwt.

The Cattle Cycle

Cattle production follows a roughly 10-year cycle driven by biological constraints and producer economics:

Expansion phase (4-6 years): High prices encourage ranchers to retain heifers for breeding rather than sending them to slaughter. This reduces immediate supply but builds the breeding herd.

Contraction phase (4-6 years): Low prices or high costs push ranchers to liquidate breeding stock. Herd reduction increases short-term supply but depletes future production capacity.

Current cycle position: The U.S. cattle herd reached 28.2 million beef cows in January 2024, the lowest level since 1961 (USDA Cattle Report). Drought conditions across major cattle states accelerated herd liquidation through 2022-2023.

Feed costs heavily influence producer decisions. Corn represents 55-65% of feedlot operating costs. When corn prices spiked above $8/bushel in 2022, many feedlots operated at losses, accelerating the cattle cycle's contraction.

Soft Commodities Overview

Soft commodities are agricultural products grown rather than extracted—primarily tropical crops traded on ICE (Intercontinental Exchange). The main contracts include coffee, sugar, cocoa, cotton, and orange juice (FCOJ).

Coffee

Two varieties dominate global trade:

Arabica: Higher quality, grown at higher elevations (typically 3,000-6,000 feet). Brazil produces 35-40% of global arabica supply. ICE Coffee "C" futures represent 37,500 pounds of washed arabica. Prices ranged from $1.50-$3.00 per pound in 2024.

Robusta: Higher caffeine content, more bitter flavor, grown at lower elevations. Vietnam produces 35-40% of global robusta. Robusta trades on ICE at a discount to arabica, typically $0.30-$0.50 per pound lower.

Weather in Brazil's Minas Gerais region (producing 30% of Brazil's coffee) drives arabica prices. Frost events in July 2021 pushed arabica prices up 25% within weeks.

Sugar

Sugar trades in two primary forms:

Raw sugar (Sugar No. 11): Unrefined cane sugar traded internationally. Brazil and India together produce 55-60% of global supply. Contract size is 112,000 pounds. Prices in 2024 ranged from $0.18-$0.28 per pound.

Refined sugar (Sugar No. 16): Domestic U.S. market sugar, typically trading at a premium to world prices due to U.S. import quotas and price supports.

Brazil's sugarcane harvest runs April through November. Cane can be processed into either sugar or ethanol—when Brazilian ethanol prices rise (tracking oil prices), mills divert cane from sugar production, tightening global supply.

Cocoa

Cocoa exhibits extreme geographic concentration. West Africa produces 70-75% of global supply:

• Ivory Coast: 40-45% of world production
• Ghana: 15-20% of world production

This concentration creates supply vulnerability. Disease outbreaks, political instability, or adverse weather in West Africa can move prices sharply. Cocoa futures (ICE) represent 10 metric tons per contract. Prices surged to $10,000+ per metric ton in early 2024, up from $2,500 in 2023, driven by West African crop disease and El Nino effects.

Cotton

Cotton production centers in the United States (primarily Texas), China, India, and Brazil. U.S. cotton futures represent 50,000 pounds per contract. Prices in 2024 ranged from $0.70-$0.90 per pound.

Cotton demand correlates with global textile consumption and competes with synthetic fibers. When oil prices rise (increasing polyester costs), cotton demand typically strengthens.

Orange Juice (FCOJ)

Frozen concentrated orange juice trades on ICE with contracts representing 15,000 pounds. Florida and Brazil dominate production. Florida's orange production has declined from 240 million boxes in 2003-04 to under 20 million boxes in 2023-24 due to citrus greening disease and hurricane damage. Prices reached record highs above $5.00 per pound in 2024.

Commodity Category Comparison

Key Price Drivers Across Categories

Weather and disease: Tropical crops face drought, frost, and disease risks. The 2024 cocoa price spike demonstrated how quickly supply disruptions in concentrated production regions affect global prices.

Currency effects: Most soft commodities price in U.S. dollars while production costs occur in local currencies. A stronger Brazilian real (BRL) increases dollar-denominated costs for Brazilian producers, potentially supporting prices.

Inventory levels: Unlike energy commodities, agricultural products have limited storage windows. Coffee can be stored for 12-18 months before quality degrades. Fresh orange juice spoils within days without processing.

Government policy: Sugar markets face extensive intervention through tariffs, quotas, and domestic price supports. Brazil's ethanol blend mandates directly affect sugar supply.

Monitoring Checklist

For livestock:

• USDA Cattle on Feed reports (monthly)
• Corn and feed grain prices
• U.S. drought monitor for cattle country
• Weekly slaughter data

For soft commodities:

• USDA Foreign Agricultural Service production forecasts
• ICO (International Coffee Organization) monthly reports
• ICCO (International Cocoa Organization) quarterly bulletins
• Weather in Brazil, Vietnam, Ivory Coast, Ghana

Seasonality patterns:

• Coffee: Brazilian harvest June-September
• Sugar: Brazilian harvest April-November
• Cocoa: Main crop October-March (West Africa)
• Cattle: Typically stronger prices Q4 into Q1

Understanding these production cycles and geographic concentrations provides context for price movements that might otherwise appear random. These markets remain smaller and more volatile than energy or metals, but their fundamentals follow identifiable patterns tied to weather, biology, and regional economics.

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Related: Agricultural Commodities and Seasonality | Commodity Index Construction | Contango vs. Backwardation Explained