CME reverses course on addressing cattle market volatility

Four months after the CME Group “declared victory over cattle market volatility” the futures exchange offered yet another surprise for the cattle industry. On Feb. 1, the CME issued an advisory notice to the marketplace that stated three delivery points would not renew their participation on the Live Cattle Futures Contract: North Platte, NE; Columbus, NE, and Pratt, KS. We understand that participating in the delivery mechanism on the contract places an onus on the stockyard and we respect any individual stockyard’s decision to participate in the contract, but a reduction in delivery capacity on the Live Cattle futures contract is unacceptable. The discontinuation of those delivery locations directly follows a year where the United States Cattlemen’s Association worked diligently with CME and the Commodity Futures Trading Commission to address cattle marketplace volatility by adding delivery locations to the contract. The withdrawal of North Platte, Columbus and Pratt from the contract amounts to an estimated 10 percent immediate reduction in the weekly deliverable supply capacity, according to the CFTC’s rules and regulations. The annual approval process was a key feature of the 2017 contract changes that was meant to ensure financial soundness and physical infrastructure of participating yards was sufficient to ensure the health and safety of the cattle, the yard crew, and the USDA graders. It was also the direct result of CME’s neglect of the physical delivery infrastructure which manifested in the removal of the yard at Norfolk, NE nearly four months after it went out of business. The annual renewal process was not meant for CME to passively watch the delivery capacity dwindle on the contract.