L-5333 (RM2-33)
3-00

Specifications of Futures and Options Contracts

James D. Sartwelle, III, Daniel O'Brien, Craig Fincham and Jamie Bennett*

There have been organized commodity exchanges in the United States since the Chicago Board of Trade (CBOT) was established in 1848. Other agricultural commodity exchanges today include the New York Cotton Exchange (NYCE, 1870), the Kansas City Board of Trade (KCBT, 1876), the Coffee, Sugar, and Cocoa Exchange (CSCE, 1882), and the Chicago Mercantile Exchange (CME, 1919). Nineteenth century grain traders developed the first exchanges to manage price risk for grain they held in storage. These exchanges and the futures and options tools that have emerged are used today by thousands of farmers and ranchers to manage price risk for the commodities they produce.

Other publications in this series deal with the use of different combinations of cash and futures/ options transactions to manage price risk. To use these tools and strategies correctly, one must understand the specifications of various futures and options contracts.

Contract specifications are the definitions, rules and limits that set the bounds for commodity futures trading. The Commodity Futures Trading Commission (CFTC) reviews the terms and conditions of proposed futures and options contracts. Before an exchange is permitted to trade a futures and options contract in a specific commodity, it must demonstrate that the contract reflects the normal market flow and commercial trading practices in the actual commodity.

Table 1 defines contract specifications for selected futures contracts, and Table 2 covers the specifications for selected options contracts. Table 3 details quality specifications for the most commonly traded agricultural products in the Plains states.

Most of these contracts are settled for cash, while a few have the option of physical delivery. Readers should check with a broker or look at commodity exchange Web sites regularly for information on settlement mechanisms and changes in futures contract specifications.

Table 1. Contract Specifications for Agricultural Futures
Commodity & Size of Contract	Ticker Symbol	Trading Hours (Central Time)	Months Traded	Price Quotes	Minimum Price Fluctuation	Daily Limit	Last Trading Day
Live Cattle 40,000 lbs	LC	9:05 a.m. to 1:00 p.m.	Feb, Apr, Jun, Aug, Oct, Dec	$/cwt	$0.025/cwt	$0.015/lb	Last business day of the month at noon.
Feeder Cattle 50,000 lbs	FC	9:05 a.m. to 1:00 p.m.¹	Jan, Mar, Apr, May, Aug, Sep, Oct, Nov	$/cwt	$0.025/cwt	$0.015/lb	Last Thursday of the delivery month at noon (or the prior Thursday if holiday conflicts with normal trading.)
Stocker Cattle 25,000 lbs	ST	9:10 a.m. to 1:05 p.m.¹	Jan, Feb, Mar, Oct, Nov, Dec	$/cwt	$0.0005/lb	$0.02/lb	Third Thursday of the delivery month at noon (or the prior Thursday if holiday conflicts with normal trading.)
Lean Hogs 40,000 lbs	LN/LH	9:10 a.m. to 1:00 p.m.¹	Feb, Apr, Jun, Jul, Aug, Oct, Dec	$/cwt	$0.025/cwt	$0.02/lb	Tenth business day of the delivery month.
Corn 5,000 bu	C	9:30 a.m. to 1:15 p.m.	Mar, May, Jul, Sep, Dec	$/bu	$0.0025/bu	$0.12/bu	Seventh business day preceding the last business day of the delivery month.
Rough Rice 2,000 cwt	RR	9:15 a.m. to 1:30 p.m.⁴	Jan, Mar, May, Jul, Sep, Nov	$/cwt	$0.005/cwt	$0.30/cwt⁵	Seventh business day preceding the last business day of the delivery month.
Hard Red Winter Wheat 5,000 bu	KW	9:30 a.m. to 1:15 p.m.	Mar, May, Jul, Sep, Dec	$/bu	$0.0025/bu	$0.25/bu	Seventh business day preceding the last business day of the delivery month.
Cotton 50,000 lbs	CT	9:30 a.m. to 1:40 p.m.	Mar, May, Jul, Oct, Dec	$/lb	$0.0001/lb to $0.0005/lb	$0.03/lb	Seventeen business days from the end of the delivery month.
Soybeans 5,000 bu	S	9:30 a.m. to 1:15 p.m.⁴	Jan, Mar, May, Jul, Aug, Sep, Nov	$/bu	$0.0025/bu	$0.30/bu⁵	Seventh business day preceding the last business day of the delivery month.
BFP Milk 200,000 lbs 100,000 lbs	DA/DA⁸MJ⁹	8:00 a.m. to 1:10 p.m.¹	All twelve calendar months	$/cwt	$0.01/cwt	$1.50/cwt⁸ N/A⁹	Exchange business day prior to the day the USDA announces the BFP.

1. Trading closes an hour early on the last day of trading.

2. No trading at a price more than $0.02/lb.

3. Limit does not apply on the last two days of the delivery month.

4. Trading closes at noon on the last day of trading.

5. Limit is lifted two business days before the delivery month begins. No limit during the delivery month.

6. Minimum fluctuation is $0.0001/lb (one "point") below $0.95/lb, or $0.005/lb (five "points") at prices $0.95/lb or higher.

7. No limit on or after the first notice day of the delivery month.

8. Specification for the Chicago Mercantile Exchange.

9. Specification for the Cotton, Sugar, and Cocoa Exchange.

Table 2. Contract Specifications for Agricultural Options

Commodity & Size of Contract

Ticker Symbol

Trading Hours (Central Time)

Months Traded

Price Quotes

Minimum Price Fluctuation

Daily Limit

Last Trading Day

Strike Price Interval/Notes

Live Cattle 40,000 lbs

KC-calls KP-puts

9:05 a.m. to 1:00 p.m.

Feb, Apr, Jun, Aug, Oct, Dec

$/cwt

$0.025/cwt

N/A

Friday of the first week of the expiration month at noon, provided Friday is a business day; revert to Thursday if not.

$0.02/cwt for all months; and $0.01/cwt for front two months in the February bi-monthly cycle also.

Feeder Cattle 50,000 lbs

KF-calls JF-puts

9:05 a.m. to 1:00 p.m.¹

Jan, Mar, Apr, May, Aug, Sep, Oct, Nov, Dec

$/cwt

$0.025/cwt

N/A

Last Thursday of the delivery month at noon (or the prior Thursday if holiday conflicts with normal trading.)

$0.02/cwt for all contract months; in addition, $0.01/cwt for first two contract months; and in the delivery month $0.005/cwt intervals as well.

Stocker Cattle 25, 000 lbs

ST/ST

9:10 a.m. to 1:05 p.m.¹

Jan, Feb, Mar, Oct, Nov, Dec

$/cwt

$0.0005/lb

N/A

Third Thursday of the delivery month at noon, (or the prior Thursday if holiday conflicts with normal trading.)

$0.005/cwt for expiring contract month; $0.01/cwt in two nearby months; and $0.02/cwt for other months

Lean Hogs 40,000 lbs

LH/CH-calls LH/PH-puts

9:10 a.m. to 1:00 p.m.¹

Feb, Apr, Jun, Jul, Aug, Oct, Dec

$/cwt

$0.025/cwt

N/A

The tenth business day of the delivery month.

$0.02/cwt for all months; and $0.01/cwt for front two months.

Corn 5,000 bu

CY-calls PY-puts

9:30 a.m. to 1:15 p.m.

Mar, May, Jul, Sep, Dec

$/bu

$0.00125/bu

$0.12/bu

The last Friday preceding the first notice day of the corresponding corn futures contract by at least five business days.

$0.10/bu increments in strike price.

Rough Rice 2,000 cwt

RRC-calls RRP-puts

9:15 a.m. to 1:30 p.m.

Jan, Mar, May, Jul, Sep, Nov

$/cwt

$0.0025/cwt

$0.30/cwt

The last Friday preceding the first notice day of the corresponding rough rice futures contract by at least five business days.

$0.20/bu increments in strike price.

Hard Red Winter Wheat 5,000 bu

WC-calls WP-puts

9:30 a.m. to 1:25 p.m.

Mar, May, Jul, Sep, Dec

$/bu

$0.00125/bu

N/A

At 1:00 p.m. the Friday at least five business days before first notice day for wheat futures.

$0.10/bu for the first tier and $0.20/bu for the second tier.

Cotton 50,000 lbs

CT

9:30 a.m. to 1:40 p.m.

Mar, May, Jul, Oct, Dec

$/lb

$0.0001/lb

N/A

The last Friday which precedes first notice day for the underlying future by at least five business day.

$0.01/lb increments in strike price.

Soybeans 5,000 bu

CZ-calls PZ-puts

9:30 a.m. 1:15 p.m.²

Jan, Mar, May, Jul, Aug, Sep, Nov

$/bu

$0.0025/bu

$0.30/bu³

The Friday which precedes by at least five business days the last business day of the month preceding the option month.

$0.25/bu increments in strike price.

BFP Milk Options

DA Calls DA Puts⁵ MI

8:00 a.m. to 1:10 p.m.

All twelve calendar months

$/cwt

$0.01/cwt

N/A

First Friday of the contract month.

$0.25 intervals in strike price.

1. Trading closes an hour early on the last trading day of the delivery month.

2. Trading closes at noon on the last trading day of the delivery month.

3. Limits are lifted on the last trading day.

4. Trading closes at 12:15 p.m. on the last trading day of the delivery month.

5. Specification for the Chicago Mercantile Exchange (CME).

6. Specification for the Coffee, Sugar, and Cocoa Exchange (CSCE).

7. Trading at the CME closes at 12:10 p.m. on the last trading day of the delivery month. Trading at the CSCE continues until the completion of the closing period which begins at 1:08 p.m.

8. Strike price increments for CSCE are $0.50 at $15.00 or more in two nearby months and at $15.00 or less in deferred months. At a price of $15.00 or more in deferred months, increments increase to $1.00.

Table 3. Quality Specifications for Selected Agricultural Futures and Options Contracts
Commodity	Exchange	Quality Specifications
Live Cattle	CME (www.cme.com)	55% Choice, 45% Select, Yield Grade 3 live steers, as defined by the United States Department of Agriculture (USDA) "Official United States Standards for Grades of Slaughter Cattle".
Feeder Cattle	CME	Each futures contract shall be valued at 50,000 pounds times the CME Composite Weighted Average Price per pound for 700 to 799 pound Medium Frame #1 and Medium and Large Frame #1 feeder steers.
Stocker Cattle	CME	Each futures contract shall be valued at 25,000 pounds times the CME Stocker Cattle Index� per pound for 500 to 599 pound Medium Frame #1 and Medium and Large Frame #1 feeder steers.
Lean Hogs	CME	Each futures contract shall be valued at 40,000 pounds times the CME Lean Hog Index�. The CME Lean Hog Index� is a two-day weighted average price per pound for packer base weight hogs, 51�52% lean/.80�.99 inches of backfat at the last rib or equivalent.
Corn	CBOT (www.cbot.com)	No. 2 Yellow corn is the quality represented by the CBOT corn contract. This contract is used not only to manage price risk for corn but also for grain sorghum, or milo. Since corn and grain sorghum are largely substitutable in livestock feeding enterprises, seasonal price movements for the two grain products are fairly similar. Many producers use the corn futures contract for their price risk management for grain sorghum after evaluating the historical relationship in their area between the two commodities. For more information on this subject, see Cross Hedging Agricultural Commodities (this can be found at www.oznet.ksu.edu/library/agec2/mf2284.pdf).
Rice	CBOT	The quality specification for CBOT rough rice futures and options is U.S. NO. 2 or better long grain rough rice with a total milling yield of not less than 65 percent including head rice of not less than 48 percent. Premiums and discounts are provided for each percent of head rice over or below 55 percent and for each percent of broken rice over or below 15 percent.
HRW Wheat	KCBT (www.kcbt.com)	No. 2 at contract price, No. 1 at 1.5 cent premium, No. 3 at 3 cent discount
Cotton	NYCE (www.nyce.com)	Strict low middling; Staple length: 1 2/32nd inch
Soybeans	CBOT	No. 2 Yellow at par and substitutions at differentials established by the exchange.
BFP Fluid Milk	CME CSCE (www.csce.com)	An estimate, calculated and announced by the USDA, of the average price paid for Grade B (manufacturing) milk by plants in Minnesota and Wisconsin.

*Extension Economist-Risk Management, The Texas A& M University System; Extension Agricultural Economist-Northwest, Kansas State University Agricultural Experiment Station and Cooperative Extension Service; Extension Economist-Risk Management and Extension Assistant-Risk Management, The Texas A& M University System.

Partial funding support has been provided by the Texas Wheat Producers Board, Texas Corn Producers Board, Texas Farm Bureau, and the Houston Livestock Show and Rodeo.

Produced by Agricultural Communications, The Texas A&M University System

Extension publications can be found on the Web at: http://agpublications.tamu.edu

Educational programs of the Texas Agricultural Extension Service are open to all citizens without regard to race, color, sex, disability, religion, age or national origin.

Issued in furtherance of Cooperative Extension Work in Agriculture and Home Economics, Acts of Congress of May 8, 1914, as amended, and June 30, 1914, in cooperation with the United States Department of Agriculture. Chester P. Fehlis, Deputy Director, Texas Agricultural Extension Service, The Texas A&M University System. 1.5M, Revision ECO