CME Group Declares Victory Over Cattle Market Volatility

CME Group Inc plans no further moves to reduce volatility in its cattle futures market, after making a series of changes to rein in wild price swings that drove away hedgers, a managing director said on Wednesday.

Over the past two years, the exchange operator, which owns the Chicago Mercantile Exchange and other markets, has cut trading hours, implemented new rules on order messaging and taken other steps to limit volatility in its cattle market.

“Right now we don’t think there’s a problem to solve, so trying to do something different wouldn’t make a lot of sense,” Tim Andriesen, CME’s managing director of agricultural products, said at the Reuters Commodities Summit.

“Generally the feedback we’re getting from the industry is it’s working, let’s leave it where it is.”

Last year, U.S. cattle producers called on CME and federal legislators to reduce volatility after cattle futures prices fell sharply in 2015 from record levels in 2014. Ranchers said big price swings had rendered the market ineffective, and some cut back on hedging strategies used to manage the risk of owning livestock.

More recently, the percentage of hedgers in the market has increased, Andriesen said, without providing specific data.

However, some traders said price swings continue to make it difficult to enter or exit futures positions at times.

Joe Ocrant, president of Oak Investment Group and a cattle futures trader in Chicago for nearly 50 years, said he has cut by three-quarters the number of live cattle positions he trades each day because of ongoing volatility.

In Nebraska, Brett Gottsch, managing partner for Gottsch Cattle Co, said he too felt the market remained volatile. Also, futures do not converge with cash prices as efficiently as they should when futures contracts are expiring, he said.

“I would say that our market’s not fixed,” Gottsch said.

More time is needed to determine whether the problems have been solved, said Sarah Calhoun, manager of government affairs for the National Cattlemen’s Beef Association, which represents producers. Reductions in volatility have come over the last several months, she said.

An online U.S. cattle auction, launched last year, has helped limit volatility by improving transparency in what meat packers pay for market-ready, or cash, cattle, traders said. Those transactions give direction to the futures market.

Derek Sammann, CME’s global head of commodities, said the cash market needs to become even more transparent.