• LIVE CATTLE FUTURES AMENDMENTS EFFECTIVE WITH THE AUGUST 2014 CONTRACT MONTH

      • To
      • Members, Member Firms and Market Users
      • From
      • Research and Product Development
      • #
      • SER-6715
      • Notice Date
      • 17 June 2013
      • Effective Date
      • 01 July 2013
    • Pending all relevant CFTC regulatory review periods, revisions to the delivery specifications and procedures for the Live Cattle futures contract will be effective beginning with the August 2014 contract month and for subsequent contract months when listed. The August 2014 contract month for Live Cattle futures and options will be listed for trading on Monday, July 1, 2013. The October 2014 contract month, which was delayed previously and the listing of the December 2014 contract month, also scheduled for July 1, will be delayed pending consideration of further changes in the futures contract specifications.
       
      Effective with the August 2014 contract month and subsequent contract months, the futures contract delivery specifications will change as follows:
       
      Maximum deliverable individual live weight: the maximum deliverable individual live weight will increase to 1,550 pounds from 1,500 pounds with a market-based discount for live animals weighing 1,500 to 1,550 pounds (based on discounts for carcasses weighing 900-1000 lbs. as noted in the relevant USDA weekly report).
       
      Premium/discount for carcass characteristics: a) payments will be made upon receipt of visual and final carcass grade/yield results, b) the fixed 20% discount for certain light and heavy carcass weights will be eliminated and c) all the newly revised weight categories and market-based price information for premiums and discounts on carcass weights from the relevant USDA weekly report will be utilized.
       
      Delivery scheduling: a) Christmas Eve and New Year’s Eve scheduling will be eliminated for live delivery, b) Saturday scheduling will be eliminated for carcass delivery, c) the contraction of the delivery scheduling period that occurs for tenders submitted on and after the last trading day will be eliminated and d) one (1) business day will be added to both the notice period and scheduling window for all deliveries.
       
      Rule amendments for the futures contract are attached.
       
      Questions regarding this Special Executive Report may be directed to David Lehman, Managing Director, Commodity Research and Product Development at 312.930.1875, david.lehman@cmegroup.com, or Tim Andriesen, Managing Director, Commodity Products at 312.930.3301, tim.andriesen@cmegroup.com or Jack Cook, Director, Commodity Research & Product Development at 312.930.3295, jack.cook@cmegroup.com, or Tom Clark, Director, Commodity Products, at 312.930.4595, Thomas.clark@cmegroup.com.
       
      For media inquiries concerning this Special Executive Report, please contact CME Group Corporate Communications at 312.930.3434 or news@cmegroup.com.
       
      © 2013 CME Group Inc. All rights reserved.  
       


      Rule amendments
      (Additions are underlined and deletions overstruck)
      Live Cattle Futures
      10103. SETTLEMENT PROCEDURES
      10103.A. Sources and Calculation of Adjustment Factors
      Quality grade adjustments for all delivery units will make use of the live weight equivalent of the Choice-Select boxed beef spread calculated from information reported by USDA (in $/cwt.) for the day of tender in the National Daily Boxed Beef Cutout and Boxed Beef Cuts – Negotiated Sales – Afternoon report. This is referred to hereafter as the Live Equivalent Choice-Select Spread (LECSS) and is computed by subtracting the “Selected Boxed Beef Cut-Out Value” from the “Choice Boxed Beef Cut-Out Value” and multiplying that result by 0.0063.
      The USDA By-Product Drop Value report for the day of tender shall serve as the source of information for calculating the condemned liver factor used in carcass-graded deliveries. The condemned liver factor shall equal the reported liver value (in $/cwt.) multiplied by -0.01.
      In addition, quality grade, yield grade and carcass weight adjustments will make use of factors calculated from values reported by USDA (in $/cwt.) in the 5-Area Weekly Weighted Average Direct Slaughter Cattle – Premiums and Discounts report. The Prime, Standard, Yield Grade 1, Yield Grade 2, Yield Grade 4, Yield Grade 5, 400-500 lbs., 500-550 lbs, 550-600 lbs., 900-9501000 lbs., and 950-1000-1050 lbs. and over 1050 lbs. factors are calculated by multiplying the reported weighted average for the corresponding category by 0.0063. If a quality grade or yield grade is broken into subcategories on this report, then the factor for that quality or yield grade shall be the simple average of all reported averages for the subcategories in that category multiplied by 0.0063. The most recently issued report with respect to the day a Certificate is tendered shall be used to calculate the factors for that delivery unit. When a Certificate is tendered on the same day that a new report is issued, that new report shall be used in factor calculation regardless of the time of day that the report is released.
      The sub-Standard factor shall equal -25% of the tender day settlement price.
      Should the USDA determine that an error exists in any of the reports used to calculate adjustment factors and subsequently issues a corrected report, that corrected report shall be used in place of the original.
       
      10103.B. Live Graded Deliveries
      1. Delivery Days
      Delivery may be made on any Business Day of the contract month, and the first seven eleven Business Days in the succeeding calendar month, provided a Certificate has been tendered as prescribed in Rule 10104.A., except that live graded deliveries may not be made prior to the seventh  ninth Business Day following the first Friday of the contract month and may not be made on Christmas Eve nor made on New Year’s Eve.
       
      4. Par Delivery and Substitutions
      a. Par Delivery Unit. A par delivery unit is 40,000 pounds of USDA estimated Yield Grade 3, 55% Choice, 45% Select quality grade live steers, with no individual animal weighing less than 1,050 pounds or more than 1,500 pounds.  
      Par delivery units shall have an estimated average hot yield of 63%.
      All cattle contained in a delivery unit shall be healthy. No cattle which are unmerchantable, such as crippled, sick, obviously damaged or bruised, or which for any reason do not appear to be in satisfactory condition to withstand shipment by truck shall be deliverable. No cattle showing a predominance of dairy breeding or showing a prominent hump on the forepart of the body shall be deliverable. Such determinations shall be made by the grader and shall be binding on all parties.
       
      b. Weight Deviations. Steers weighing less than 1,050 pounds or more than 1,500 1,550 pounds shall not be deliverable. Steers weighing more than 1,500 pounds but less than or equal to 1,550 pounds shall be deliverable at an adjustment equal to the 900-1000 lbs. factor described in Rule 10103.A., multiplied by the average live weight of the delivery unit. The judgment of the grader as to the number of such overweight or underweight cattle in the delivery unit shall be final and shall be so certified on the grading certificate.
       
       
      10103.C. Carcass Graded Deliveries
      1. Conditions
      A buyer assigned a Certificate of Delivery may call for delivery of the cattle to an approved slaughter plant corresponding to the stockyards designated in the Certificate, or to any other approved slaughter plant within 200 miles of the feedlot from which the cattle originate. For the purposes of Chapter 101, a feedlot shall be defined as any location where cattle are confined to a pen and provided access to feed and water including, but not limited to, commercial feeding operations, farmer feeding operations and stockyards.
      Final grading will reflect actual carcass results. If the buyer elects carcass grading, slaughter shall not occur prior to the second  third Business Day following the buyer’s notification of the CME Clearing House. The Clearing House must be notified by 10:00 a.m. on the second  third Business Day prior to the day of slaughter of the buyer's election of carcass grading, the approved slaughter plant and slaughter day, and whether the buyer consents to a Large Lot Delivery Unit if elected by the seller under Rule 10103.C.5.f.
      Upon arrival at the slaughter plant, cattle must be allowed access to water.
       
      2. Delivery Days
      Delivery may be made on any Business Day day of the contract month on which the approved slaughter plant selected by the buyer is in operation, and on the first seven  elevenBusiness Days in the succeeding calendar month, provided a Certificate has been tendered as prescribed in Rule 10104.A., and provided proper notification has been given to the Clearing House as prescribed in Rule 10103.C.1., except that carcass graded deliveries may not be made prior to the fourth  fifth Business Day following the first Friday of the contract month
       
      4. Payment
      Upon the seller's fulfillment of delivery to the slaughter plant selected by the buyer and Clearing House receipt of visual grading results, the Clearing House shall release 90% of the funds to the seller. Remaining funds will be released to the seller upon the completion of final carcass grade and yield results. Title to each delivered unit shall pass to the buyer when the delivered unit is weighed and placed in a holding pen for slaughter at the approved slaughter plant selected by the buyer.
       
      5. Par Delivery and Substitutions
      b. Weight Deviations. Resulting carcasses weighing less than 550500 pounds or more than 1000 pounds  shall be deliverable at a per pound adjustment equal to the 400-500 lbs factor described in Section 10103.A. discount of 20% of the settlement price. Resulting carcasses weighing 500 pounds but less than 550 pounds shall be deliverable at a per pound adjustment equal to the 500-550 lbs factor described in Section 10103.A.Resulting carcasses weighing more than or equal to 550 pounds but less than 600 pounds shall be deliverable at a per pound adjustment equal to the 550-600 lbs. factor described in Section 10103.A. Resulting carcasses weighing more than 900 pounds but less than or equal to 950 1000 pounds shall be deliverable at a per pound adjustment equal to the 900-9501000 lbs. factor described in Section 10103.A. Resulting carcasses weighing more than 9501000 pounds but less than or equal to 10001050 pounds shall be deliverable at a per pound adjustment equal to the 950-1000 1000-1050 lbs. factor described in Section 10103.A. Resulting carcasses weighing more than 1050 pounds shall be deliverable at a per pound adjustment equal to the over 1050 lbs factor described in Section 10103.A. The per animal carcass weight adjustment shall equal the per pound adjustment multiplied by the average live weight of the delivery unit.
       
       
       
       
      10104. PROCEDURES FOR TENDER, DEMAND, RETENDER, RECLAIM, AND ASSIGNMENT OF CERTIFICATES OF DELIVERY
      10104.A. Tendering a Certificate
      A clearing member representing a short may present a Certificate of Delivery (on a form prescribed by the Clearing House) to the Clearing House no later than 4:30 p.m. on any Business Day except that Certificates may not be tendered:
      1. On or before the first Friday of the contract month;
       
      2. After the third Business Day after expiration.
       
      3. On any Business Day that would result in alive delivery being scheduled on Christmas Eve or New Year’s Eve.
       
      A Certificate of Delivery is a commitment to deliver cattle conforming with contract specifications at the delivery point designated in the Certificate, or at a corresponding approved slaughter plant selected by the buyer, if the Certificate is not reclaimed.
      A Certificate tendered before the termination of trading requires delivery on the sixth  eighth Business Day that is also a delivery day following the tender of that Certificate, if the buyer elects live grading. If the buyer elects carcass grading, the Certificate requires delivery at the option of the buyer on any Business Day day the slaughter plant is in operation between thethird  fourth Business Day and the sixtheighth Business Day, inclusive, following tender of that Certificate.
      A Certificate tendered on or after the day trading terminates requires delivery on the fourth Business Day that is also a delivery day following the tender of that Certificate, if the buyer elects live grading. If the buyer elects carcass grading, the Certificate requires delivery at the option of the buyer on the third Business Day or fourth Business Day following tender of that Certificate, or on an intervening day that the slaughter plant is in operation.
       
      A Certificate must include the name, location, business address, and telephone number of the feedlot from which the cattle originate. A Certificate must also include: (1) the distance between the feedlot and the stockyards to which the cattle are tendered for delivery; (2) the distance between the feedlot and the approved slaughter plants corresponding to the stockyards to which the cattle are tendered for delivery; and (3) any other approved slaughter plants within 200 miles of the feedlot and the distances to such approved slaughter plants.
      The seller is responsible for determining, in advance of tendering a Certificate, if the delivery point stockyards will be able to accommodate a live-graded delivery on the sixth  eighth Business Day following the day of tender (fourth Business Day following the day of tender if tender is on or after the last Trading Days) should the buyer request one. If the buyer requests a live-graded delivery which the stockyards is unable to accommodate, then this will be deemed a failure by the seller to present a load of cattle for USDA grading under Rule 10103.B.8. In addition, the Exchange may prohibit deliveries on certain days for certain locations at which it deems deliveries would not be feasible due to auctions or other activities.
       

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