Based on feedback from customers, CME Group will list the December 2017 Live Cattle futures and options contract months effective Monday, October 3, pending all relevant regulatory periods.
Based on continued collaboration with the cattle industry and results from an independent study conducted by Informa Economics, CME Group recently announced it will take additional actions to enhance Live Cattle futures markets and address cattle market performance.
Based on extensive customer feedback, internal review and Informa’s independent research, CME Group will add a seasonal discount of $1.50 per hundredweight on live cattle tendered to its Worthing, South Dakota delivery location for the October contract only. The new discount will be effective with the October 2017 contract, which will be listed for trading on Monday, August 22, 2016, pending CFTC review. The extensive research supporting this decision concluded that this discount would better align delivery values with cash market prices and maintain compliance with CFTC’s policy on location price differentials, while resulting in little or no impact on local cash cattle prices.
Based on industry feedback and increasing quality grades seen in all major fed cattle regions, CME Group will update par quality grades for both live and carcass-graded deliveries to 60 percent choice and 40 percent select, from 55 percent and 45 percent respectively. Pending regulatory reviews, these changes will be effective with the October 2017 contract month.
CME Group applauds the efforts of the industry to create additional market transparency, particularly through efforts like the recently introduced cash cattle auctions.Transparent negotiated or auction-based cash markets are a prerequisite for effective futures markets, particularly those with physical delivery. However, only approximately 20 percent of cattle sales are negotiated in cash markets across the U.S. today with less than five percent in major producing states like Texas and Oklahoma. As a result, CME Group will delay listing any additional contract months beyond October 2017 as we continue working with the industry to evaluate ways to improve cash market transparency, review cash market developments and consider the introduction of cash-settled products if transparency does not improve.
Based on customer requests, CME Livestock futures and options trading hours were reduced to align with the period of greatest liquidity in these markets. During 2015, roughly 87% of daily Livestock futures and options trades occurred during the proposed hours.
Effective Monday, 29 February, the proposed trading hours for Live Cattle, Feeder Cattle and Lean Hog futures and options were as follows:
The daily settlement period and procedures for CME Livestock contracts remain unchanged.
CME Group formed a working group with the National Cattlemen’s Beef Association to discuss other possible enhancements to its cattle markets, including, but not limited to, circuit breakers and other measures to further heighten market quality.
In addition to the measures described above, CME Group recently added its livestock products to the messaging efficiency program on Monday, 1 February.