Six months after the CME Group met with cattle producers in an effort to address market volatility more changes are being made to further develop live cattle futures markets.

“We greatly value our relationship with the cattle community and are committed to helping producers and commercial firms manage their price risk,” said Tim Andriesen, CME Group managing director of agricultural products.

The modifications being made by CME Group include:

  • Seasonal discount for futures deliveries at Worthing, S.D. delivery location.
  • Revised grading and quality specifications.
  • Delayed listing of additional contract months beyond October 2017.

CME Group has worked with the cattle industry and had Informa Economics conduct an independent study to help determine what measures should be taken. The move at Worthing was a direct result of this type of collaboration, and a seasonal discount of $1.50/cwt will be added on the October live cattle contract only. It will go into effect on the October 2017 contract, pending a U.S. Commodity Futures Trading Commission (CFTC) review on Aug. 22.

A group of 10 Senators and House Representatives from South Dakota, North Dakota, Minnesota and Iowa sent a letter in May to the CME opposing the measures because the Worthing delivery point was being singled out for a discount.

“While we acknowledge the potential logistical issues associated with the high number of deliveries, we stringently oppose the CME interfering with the price convergence in only a single market,” the letter reads. “It would interfere with the process of price discovery based on fundamental supply and demand factors, directly impacting the beef producers in our states.”

Grading changes will be made for both live and carcass-graded deliveries moving from 55% Choice and 45% Select, to 60% Choice and 40% Select. These changes would also be effective for October 2017 contracts following a CFTC review.

“While we are announcing these changes and will continue our ongoing work with the industry, we have concerns about the lack of transparency of cash cattle markets,” Andriesen said.

The delay in listing was made because cash markets only make up 20% of cattle sales, according to CME Group. In major cattle producing states like Texas and Oklahoma, cash markets account for less than 5% of sales. CME Group plans to delay any additional listing on contracts beyond October 2017 while the organization works with the cattle industry to determine how to improve cash market transparency.

National Cattlemen’s Beef Association (NCBA) has been in discussions with the CME Group since late-January to help address market volatility.

“As market volatility continues to threaten the effectiveness of the futures markets, NCBA is committed to working directly with the CME group to find a solution,” said NCBA president Tracy Brunner at NCBA’s Summer Convention in July.

“Market volatility, driven by high frequency trading, has been a major concern for producers across the country. The NCBA CME working group had the opportunity to meet in person at this meeting to discuss these issues. While discussions continue, I am confident that through working with CME, we can resolve these issues to ensure the futures market is a viable tool for risk management,” Brunner added.

Since meeting with cattlemen at the Cattle Industry Convention in San Diego on Jan. 29, CME Group has shortened trading hours and increased communication with groups like NCBA.

To hear CME Group’s Dave Lehman comment on the recent cattle futures market changes listen to the following audio from Market Rally:

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