Cattle producers asking CME to make changes in live futures contract
The Iowa Cattlemen’s Association is supporting efforts by the National Cattlemen’s Beef Association to move the CME’s live cattle futures contract to a position where it converges with the cash market.
NCBA members adopted policy to seek changes following a task force report led by Ed Greiman, a Garner, Iowa cattle producer. The changes being sought from the CME would protect the live futures contract as a viable and valuable risk management tool, while increasing deliverable supply, better reflecting the trend of increased cattle weights, and improving convergence of futures and cash markets, Greiman said.
“The changes we are focused on will help cattlemen get a clear picture of the cattle markets,” Greiman said. “The futures market is used by both speculators and hedgers. Speculators are necessary to the market because they supply more volume, and that movement in the market gives producers an opportunity to hedge and manage their risk. The changes that NCBA is seeking would increase the deliverable supply of cattle against the futures market, therefore forcing the future and cash markets to converge.”
“There is an ever-shrinking national cash trade. Our work shows that Iowa is the highest price discovery state. However, we are following the trend of shrinking cash trade. It moved from 72 percent in 2011 to 66 percent in 2012,” he said. “We don’t have the answer to stop this trend, but if we can get some of these changes from the CME to bring futures and cash prices closer together, we should have more transparency as to what is happening in the market.”
Specifically, NCBA is asking that fed heifers be included as deliverable cattle to honor a contract. For the past decade, fed heifers have averaged 38 percent of slaughter cattle. In an environment of decreasing fed cattle supply, including heifers would benefit both buyers and sellers.
The cattlemen are also asking for an increase in maximum live weights from 1,500 pounds to 1,650. Current carcass weights of 1,050 pounds are not discounted, and that carcass weight typically would be yielded from a 1,667-pound animal. The 1,650-pound maximum individual live weight is a reasonable and logical standard, NCBA told the CME.
Greiman said cattle producers need to have more input with the CME as markets evolve and change.