Live Cattle Delivery Report Decoded

Reading the live cattle deliveries report from the CME Group can be daunting, but heavy deliveries are highlighting its importance this month.

Even traders who have at one time or another made or received delivery of a live cattle futures contract can’t explain the whole thing.  Some said the rules for delivery of a CME live cattle contract are so daunting and specific that it’s a wonder anyone delivers, and many just avoid the whole discussion.

And even the report can’t hint at why the cattle are being delivered or received.  This report may help clear up some of the report’s mysteries, but space does not allow for a complete treatise on live cattle futures deliveries.  The CME has delivery rules posted on its website for more information.

 

CHAIN OF OWNERSHIP

 

Delivery of a futures contract involves 40,000 pounds of steers OR heifers, not both.  The weights are slightly different, and heifers require an affidavit that they were administered an approved estrus-suppressing progestin additive.

Once a short decides to deliver, a certificate is delivered to the CME Clearinghouse, designating which approved delivery yard will be used.  The clearinghouse matches this with the oldest long and notifies the long that he or she will own the cattle at the end of the delivery process.  This shows up in the report as “tenders at 0.”

The receiving long may not reject delivery, but it can be retendered for delivery to another long.  The long must establish a short position to do this, and it will cost $0.01 a pound, or $400 per contract.  This fee is passed along to the next long, so the cattle will be purchased at a slight discount to the original tender price.

At that point, it will go one of two directions:  either to what is by then the oldest long or to a long that wishes to take delivery at the location the short has chosen.

A delivery may only be retendered twice with the same fee each time, and the receiving long at that point is stuck with it, so it pays to pay attention.

 

THE RECLAIM

 

A broker representing a short who has tendered a certificate of delivery may reclaim the certificate upon the first or second retender if there is no demand notice issued for it.  But to do this, the reclaiming short must have established a long position in the contract month and must issue a reclaim notice to the clearing house.

Essentially, the short is taking delivery of his own delivery.

 

CATTLE, BEEF RECAP

 

Fed cattle trading was reported in the Plains last week at $113 to $114.50 per cwt on a live basis, steady to up $0.50 to $1 from the previous week.  Dressed-basis trading was at $180 per cwt, steady to up $2.

The USDA choice cutout Tuesday was up $2.33 per cwt at $234.77, while select was up $0.62 at $222.03.  The choice/select spread widened to $12.74 from $11.44 with 54 loads of fabricated product and 24 loads of trimmings and grinds sold into the spot market.

The USDA reported Tuesday that basis bids for corn from livestock feeding operations in the Southern Plains were unchanged at $1.00 to $1.25 a bushel over the Mar CBOT futures contract, which settled at $5.52 1/4 a bushel, up $0.13 1/2.

Thirty-five heifer and no steer contracts were tendered for delivery Tuesday.  Forty-one heifer and 14 steer contracts were retendered at one.  Four steer contracts were demanded at one and five steer contracts were reclaimed at one.

The CME Feeder Cattle Index for the seven days ended Friday was $133.41 per cwt, down $1.04.  This compares with Tuesday’s Mar contract settlement of $140.77 per cwt, down $0.07.