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Cattle Producers Seek Changes to CME Live Cattle Futures Contract

Producers look to increase the deliverable supply of cattle against the futures market

Published on: Apr 19, 2013

National Cattlemen's Beef Association members earlier this year adopted policy allowing the group to ask the CME to move its live cattle futures contract to a position where it converges with the cash market, according to 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, Greiman said, while increasing deliverable supply, better reflecting the trend of increased cattle weights, and improving convergence of futures and cash markets.

"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."

Producers seek changes to increase the deliverable supply of cattle against the futures market
Producers seek changes to increase the deliverable supply of cattle against the futures market

Greiman said there is an ever-shrinking national cash trade. He thinks if the CME could bring futures and cash prices closer together, there would be 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% of slaughter cattle.

In an environment of decreasing fed cattle supply, including heifers would benefit both buyers and sellers, according to the Iowa Cattlemen's Association.

NCBA members are also asking for an increase in maximum live weights from 1,500 pounds to 1,650. Current carcass weights of 1,050 pounds aren't discounted, they said, 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.

Source: Iowa Cattlemen's Association