Persistence of NCBA Results in Significant CME Decision

Washington, D.C. (October 18, 2002) – The Board of Directors of the Chicago Mercantile Exchange (CME) has voted to reduce spot month speculative limits on the Live Cattle Futures Contract from 600 contracts down to 300 contracts.  This decision is consistent with National Cattlemen’s Beef Association’s (NCBA) longstanding policy to limit speculator action during the delivery month.

“Over the past few years we have consistently made requests for such a decision. These limits will reduce downward bias on the market and risk of undue influence of large traders during the delivery period. This is a very positive step by the CME,” says Bryan Dierlam, NCBA director of Legislative Affairs.

This 300 contract speculative limit will be in place as of the close of business on the first business day following the first Friday of the contract month.  The change will apply to the December 2002 through October 2003 contract months and will become effective upon approval by the Commodity Futures Trading Commission.  The CME also voted to postpone listing the December 2003 Live Cattle contract until further notice.

“Cattle producers across the country can appreciate this announcement. It demonstrates that the CME is helping to build a positive working relationship with the industry so that together we can make improvements that will enhance risk management and price discovery.  The Board members at CME understand that these changes will enhance the futures market as a viable tool for the cattle industry,” said Iowa cattleman and NCBA President Wythe Willey.

“This announcement comes at a favorable time, as NCBA’s Futures Working Group is currently scheduling a November meeting to bring together representatives from NCBA, the U.S. Department of Agriculture, and the CME to discuss delivery bottlenecks,” says Dierlam.

Such bottlenecks can result in cattle not being graded and sent back to feed, thereby increasing transportation costs and shrink loss. On any given day, one delivery point may be swamped with deliveries while another is underutilized.

The Futures Working Group is a subcommittee of the Price Discovery Think Tank. This Think Tank is comprised of industry leaders who have come together to address critical economic issues standing in the way of producer profitability. The members investigate alternatives for determining the value for cattle sold on formulas and grids; the use of more accurate, volume weighted retail price information; the development of a more acceptable definition of captive supply; a better understanding of retail margins; and other areas in an effort to rebuild prosperity for cattle producers.

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