Response to United States Cattlemen’s Association letter to the editor
In response to the opinion piece authored by Kenny Graner of the United States Cattlemen’s Association regarding our Live Cattle futures market that ran in your publication on March 19, 2018, we want to set the record straight by clarifying a number of misperceptions in the article, especially as live cattle delivery capacity has actually increased in the last year.
CME Group’s primary objective is to provide an effective hedging tool to manage risk. We have and will continue to work closely with cattle industry groups, regulators and customers to address concerns about market volatility and delivery capacity in these markets. In fact, since 2016, we’ve made several enhancements, including forming an industry working group with NCBA, implementing a messaging efficiency program, reducing livestock trading hours, modifying delivery rules to allow for greater capacity and revising quality and grading specifications.
In contrast to what was suggested in the article, weekly live cattle delivery capacity has grown 6 percent from year-ago levels after adding four new delivery locations (Dalhart, Texas; Kearney, Nebraska; Lexington, Nebraska; and West Point, Nebraska). These new locations have more than offset the reduction in capacity resulting from the decision of three stockyards to withdraw from the delivery process. Moreover, the three that withdrew accounted for only three percent of all live cattle deliveries over the past six years. Additionally, we also incorporated contract changes that increase delivery capacity on the last trading day of a contract month by over 150 percent, significantly reducing any chances for congestion that could adversely affect price discovery.
Contrary to Graner’s assertions, the facility in Dunlap, Iowa, withdrew its application to become a CME Group delivery facility and is no longer under consideration. The process for identifying new delivery locations is one we take very seriously—and is more complicated than simply finding a modern facility. We consider a range of factors, including timely availability of USDA graders and the availability of nearby packing capacity. We will continue to pursue additional delivery locations and aim to continue adding capacity in the coming months.
We welcome engagement with and input from trade organizations, including the USCA, and all of our customers as we review additional live cattle delivery locations and implement contract enhancements. We are committed to maintaining ongoing dialogue as an important part of the process as we work to ensure CME Group futures and options remain the best risk management tools for the industry.
—Tim Andriesen is CME Group managing director of agricultural products.
