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April 6, 2023
Methods and Supporting Information (Prior Years)
constructed in which your name is linked with your responses. The …
April 6, 2023
Methods and Supporting Information (Prior Years)
constructed in which your name is linked with your responses. The …
April 3, 2024
Methods and Supporting Information
constructed in which your name is linked with your responses. The …
April 3, 2024
Methods and Supporting Information
constructed in which your name is linked with your responses. The …
April 3, 2024
Methods and Supporting Information
constructed in which your name is linked with your responses. The …
June 28, 2018
Hedging & Options
INTRODUCTION
The CME Live Cattle Futures Contract has been an important risk management tool available to
the cattle and beef industry for more than 50 years. The magnitude of capital at risk in the
industry together with elevated market volatility present today makes having a viable live cattle
futures market of immense importance in price risk management. The viability of this market
hinges on how effectively its use mitigates fed cattle price risk for hedgers.
The performance of the live cattle futures market rests heavily on contract specifications. One
debated contract specification in live cattle futures is physical delivery as a way to settle the
obligation of a short position in the market. The delivery option is the main way cash and
futures prices for delivery settled contracts can be aligned in the delivery period near contract
expiration. Convergence of cash and futures in the current contract is conditioned on delivery
potential. However, a variety of concerns surround live cattle futures contract delivery. The
magnitude of concerns prompted industry and CME Group discussions to consider eliminating
delivery in live cattle futures and switch to a cash settled contract.2 Though certainly not new,
as switching the contract to cash settlement was considered in the mid‐1990s,3,4 the debate has
elevated again in recent years.
NCBA has an established policy position supporting physical delivery settlement of the live
cattle futures contract.5 However, concerns surrounding delivery need to be carefully assessed
and evaluated to potentially improve this component of the live cattle futures contract. This
project was designed to identify and document concerns with current delivery and to provide
practical guidance to NCBA as they consider alternative physical delivery mechanisms in the live
cattle futures market.
The range of sentiments of cattle market participants we interviewed for this study ranged
from those who thought the contract worked very well to those who see the contract and
physical delivery as outdated and inconsistent with the modern live cattle industry.
…