Cow-Calf Certification Practice Exam

What is the standard size coverage for futures and options contracts in cattle?

1. 50 head

2. 100 head

3. 50,000 lb

4. 100,000 lb

The correct answer is: 50,000 lb

The standard size coverage for futures and options contracts in cattle is indeed based on the weight of the livestock. Futures contracts for live cattle typically cover 40,000 pounds of cattle, while contracts for feeder cattle cover 50,000 pounds. Therefore, when specifically considering your answer choice referring to pounds, 50,000 lb aligns closely with the typical coverage for feeder cattle, which is relevant in the context of the futures market. This measurement is used because cattle are traded by weight, and determining the value of a contract in terms of pounds provides a more standardized approach across the market, allowing for easier comparisons and transactions. While weight measurement is the primary basis for cattle trading in futures contracts, options contracts generally reference the same contract specifications, which do not deviate much from the standard weight parameters established for the futures. Recognizing this context helps understand why weight, rather than the number of head of cattle, is often the critical factor for contract specifications.