ASK CLARA: What happens when someone is long feeder cattle futures and they don't do anything? 

When someone is long feeder cattle futures and they don’t take any action (such as offsetting their position or rolling it forward), the following happens:

1. If They Hold Until Expiration:

• Feeder cattle futures are cash-settled on the last Thursday of the contract month based on the CME Feeder Cattle Index (a weighted average of cash feeder cattle sales).
• If the futures price at settlement is higher than their purchase price, they profit the difference.
• If the futures price is lower, they lose the difference.

2. No Physical Delivery:

• Unlike live cattle futures, feeder cattle contracts do not result in physical delivery. Instead, the position is closed at the final settlement price.

3. Margin Implications:

• The trader must maintain margin funds in their account to cover potential losses. If the market moves against them, they may receive a margin call requiring additional funds.
• If they don’t meet a margin call, their broker may liquidate the position before expiration.

4. Risk Exposure:

• Holding a long futures contract means they are exposed to market swings. If feeder cattle prices fall sharply, they could take a significant loss before expiration.
• If prices rise, they benefit, but they must be able to handle market volatility.

Bottom Line:

If someone does nothing while holding a long feeder cattle futures contract, it will automatically settle in cash at expiration, based on the CME Feeder Cattle Index price. They will realize a profit or loss depending on where they initially bought the contract.

Disclaimer:

CLARA provides market insights, analysis, and data for informational purposes only. All content, including futures pricing, market trends, and forecasts, is not financial or trading advice. Market conditions are subject to rapid changes, and past performance is not indicative of future results. Users should conduct their own research and consult with qualified financial professionals before making trading or investment decisions. CLARA is not responsible for any financial losses or decisions made based on the information provided.