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Q3 volume peak brings increased liquidity, more ways to manage risk

Agricultural futures and options reached the highest-ever Q3 volume with ADV hitting 1.4 million contracts. 

Compared to the Q3 last year, this is a 19% ADV increase including records in Feeder Cattle futures  (ADV 21,741 contracts) and Ag Weekly options.

This continued growth provides clients with greater liquidity and ways to manage risk.

Trade efficiently and transparently with Trading at Settlement (TAS)

TAS is currently offered in all Grain, Oilseeds, and Livestock futures. As of October 1, we have substantially increased the number of eligible outright and spread instruments in KC Wheat, Soybean, Soybean Meal, and Soybean Oil TAS futures.

What is TAS?
Trading at Settlement (TAS) is an order type that allows a market participant to buy or sell futures contracts during the trading day equal to the yet-to-be determined settlement price, or at a price up to 4 ticks above or below that price.

This update provides clients with more trading flexibility by reducing uncertainty related to pricing around settlement.

Livestock options use soars as traders hedge drought-driven price risk

We are seeing a trend where market participants are turning to Feeder Cattle options as recent hot, dry weather has caused drought concerns to persist. Moving into the fall calving season, there is a high level of uncertainty around expectations of cow herd expansion and whether the recent weather pattern may impact growth. At the same time, the August 1 USDA Cattle on Feed report noted placements of feeder cattle into feedlots for finishing during July were down 8%, which is the lowest since 2017. This news, along with the impending calving season, has many participants utilizing options in record numbers to lock in prices.

During Q3, Livestock futures and options reached the following notable records:

Feeder Cattle

  • YoY record high ADV (19,774) and OI (118,700) for Feeder futures and options (combined)
  • YoY record high ADV (16,994 contracts) and OI (57,135) for Feeder Cattle futures 
  • YoY record high ADV (2,779 contracts) and OI (62,243) for Feeder Cattle options 

Live Cattle

  • Record ADV (80,225 contracts) for Live Cattle futures and options (combined)

Lean Hogs

  • Highest ADV (68,176) and OI (501,747) for Lean Hog futures and options since 2019 (the outbreak of ASF)

Fine-tune risk with the deep liquidity and record growth of agricultural short-term options

Agriculture Weekly options ADV traded over 10K times in Q3, making it the best third quarter ever. Chicago Wheat (+138%) and Soybean (24%) Weekly options followed suit, showing the highest percent growth YoY.

Volume centered around different time frames in relation to option maturity for Agricultural products, as shown in the below chart.

Lumber: Cost to trade is low and adoption is high

We continue to see tremendous growth and adoption in Lumber futures and options contracts since their launch over one year ago, making them a premier risk tool. To date, the open interest in LBR is currently over 7,000 contracts out to March 2024. LBR growth and interest continue to rise as the contracts hit several records, including: 

  • Record options volume day on 9/5 of 134 contracts
  • Average Daily Volume was over 800 contracts in August
  • Average Daily Notional Volume in August was over $12M or 23M+ Board Feet

We are consistently seeing 1-3 tick wide markets ($13.75 per tick), keeping the overall cost to trade low. Lumber provides clients with another way to help diversify their risk exposure.

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All examples in this report are hypothetical interpretations of situations and are used for explanation purposes only. The views in this report reflect solely those of the author and not necessarily those of CME Group or its affiliated institutions. This report and the information herein should not be considered investment advice or the results of actual market experience.

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