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Beef Buzz News


Changes to Help Offset Market Volatility to Be Implemented By CME Group in Live Cattle Contracts

Wed, 24 Aug 2016 16:43:28 CDT

Changes to Help Offset Market Volatility to Be Implemented By CME Group in Live Cattle Contracts Lots of concerns are being raised by beef producers these days over the volatility being observed in recent market activity. The Chicago Mercantile Exchange (CME) Group has met with members of the cattle industry to discuss possible solutions to this situation that has producers at a disadvantage. In response, the CME has announced some changes being implemented for live cattle contracts in an effort to offset the volatility. K-State Extension Beef Specialist Dr. Glynn Tonsor explained to Farm Director Ron Hays, he believes these changes will have a positive impact for cattle producers.


Three changes to live cattle futures contracts have been announced - two of which Tonsor says address important technicalities in futures trading. The first change, is CME’s intention to place a “seasonal discount” of $1.50 on the October contract only for deliveries to Worthing, South Dakota, according to Tonsor. The second he says is to create equality in the specifications of deliveries. Instead of a 55/45 split, the delivery mix will change to 60 percent Choice and 40 percent Select. This is scheduled to start with the October 2017 contract.


“Basically, the stated goal here is to better align delivery values with cash market prices - keep regional differences a little more in line with what we’d expect,” Tonsor said, adding also, “Effectively, that’s basically just trying to get the specs in line with what we actually observe in live cattle.”


The third change, calls for a short-term pause in deferred live contracts beyond the fall of 2017. Tonsor says, for now, the CME has stated that they do not plan to list or make available any of the contracts after October 2017. He says this is due to concerns about the inner workings of the cash market. Tonsor asserts that the CME is working with several segments of the industry in an effort to try and understand all the aspects of liquidity transparency of the fed cattle market; an issue markets have wrestled with for a long time.


“There’s a lot of things on the table here,” Tonsor said. “A lot more unanswered questions than there are answers at the moment, I think can be a fair statement.


“I think it’s an effort to get this contract, which is basically a price risk management tool, to get them better in line with what we think real value of animals are…And I think that’s good.”


Listen to Dr. Glynn Tonsor explain CME’s changes to live cattle futures trading in further detail to Farm Director Ron Hays, during today’s Beef Buzz.


The Beef Buzz is a regular feature heard on radio stations around the region on the Radio Oklahoma Network and is a regular audio feature found on this website as well. Click on the LISTEN BAR below for today's show and check out our archives for older Beef Buzz shows covering the gamut of the beef cattle industry today.



   



   

Listen to Dr. Glynn Tonsor explain to Farm Director Ron Hays the changes the CME Group is making
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