About a year and a half ago, the CME Group began working with the National Cattlemen’s Beef Association and the cattle industry to make changes to live and feeder cattle contracts to more closely align them with cash market values. While the changes made so far were not specifically designed to lower the level of volatility in the market which past incidents helped to spark this effort, CME’s Managing Director of Agricultural Products Tim Andriesen says, that volatility seems to have calmed a bit compared to two years ago. He claims there are outside factors out of the CME’s control that contribute to volatility. But the feedback from the cattle industry thus far in the process of making changes, has been positive.
There are multiple factors beyond the Exchange’s control which impact volatility - including weather, supply and demand, exports, strength of the US dollar and lack of transparency in cash cattle markets,” Andriesen said. “We believe this has made them (changes made to cattle futures contracts) more effective hedging tools and has been evidence by increased levels of open interest in commercial participation in our markets this year, versus 18 months ago.”
Some of the changes made to contracts since 2016 include the implementation of a more efficient messaging program, a reduction in livestock futures and options trading hours, the addition of a seasonal discount to cattle delivered to Worthing, SD and a revision to quality and grading specs. The CME has also added delivery locations this year which is expected to help increase delivery capacity. But, still, Andriesen says the process to improve contracts in a way that make them more reflective of cash cattle markets, is ongoing and they continue to take feedback from their customers.
“We value our relationship with the cattle community and are committed to helping producers and commercial firms manage their price risk,” he said. “Nothing is more important to us than the integrity of our markets.”
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