CME's Efforts Starting to Pay Off as Benefits of Work to Improve Cattle Contracts Becomes ApparentFri, 16 Nov 2018 10:54:43 CST
Tim Andriessen is managing director for agricultural products for the CME Group. During the recent National Association of Farm Broadcasters Convention in Kansas City, he spoke with Radio Oklahoma Ag Network Associate Farm Director Carson Horn about the work his office has conducted over the past couple years to identify changes to the live cattle futures contracts offered by the CME that will help improve them and reduce related volatility in the market.
“We’re very attune to customer feedback around our contracts and over the last couple of years we’ve spent a lot of time working with NCBA and a lot of people in the cattle industry, other organizations and our customers directly on how to make sure our cattle contract is the most effective hedging tool for them,” Andriessen said. “I think we’ve seen the benefit of a lot of that work. Many of the changes we’ve being putting in place are coming into effect, but for us it’s always an ongoing process of making the contract better and more effective as a hedging tool.”
Through this process, Andriessen’s working group has managed to identify some of the root causes that he attributes much of the recent volatility in the marketplace to. For instance, he says in large part, the way producers market their cattle in the modern era is much different than the traditional practices we have seen in the past. More and more, Andrieseen says cattle are being bought and sold on grid rather than the open market. Even the size of cattle today, has impacted the market in a measurable way. He adds that there has been significant discussion regarding the proper function of choice/select spreads and the implications they have on live cattle contracts.
“So, we think these are some of the things we need to continue to work on. But, first and foremost, our products need to be an effective hedging tool. If the commercial cattleman can’t use our contract and it’s not an effective hedge, then we’ve got a problem and we need to address it,” he said. “But, we’re seeing some of the best use of our contracts that we’ve seen in a long time and we set open interest records this year. I think from that standpoint, we definitely have more people using the contract than ever and I think that’s a good reflection.”
Listen to Andriessen and Horn discuss the work that has been done to improve the CME cattle contract, with Radio Oklahoma Ag Network Farm Director Ron Hays, on 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.
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