Pending Commodity Futures Trading Commission approval, the Chicago Mercantile Exchange Inc., will amend the live cattle and feeder cattle futures contracts on Oct. 5, expanding initial margins and linking expanded margins in both, a CME Group announcement said.
Daily price limits for live cattle futures will be expanded to $0.040 a pound from the current $0.030, and to $0.050 a pound from the current $0.045 for feeder cattle, the CME Group said.
The existing practice of establishing expanded price limits at 150% of the initial daily limits will be maintained, the CME Group said. This will result in an expanded daily limit for live cattle of $0.060 a pound from the current $0.045 and an increase in the expanded price limit for feeder cattle to $0.075 a pound from the current $0.0675.
Triggering one expanded limit also will trigger the other, said Jim Sullivan, director of Commodity Research and Product Development at the CME Group. This means that if expanded limits are triggered by settling at the daily limit in one of the first four delivery months of either live cattle or feeder cattle futures, the daily limits will be expanded in both.
VARIABLE PRICE LIMITS TO RESET ANNUALLY
In addition, beginning with the Jun 2021 contract, the CME Group intends to replace the current fixed daily price limit systems, with their fixed price limits and expansion mechanisms, with a variable price limit regime. This will be price-based, meaning it will be a percent of the daily price limit, and will be reset annually.
Sullivan said the two cattle contracts were some of the last CME Group contracts to be changed to a system where the expanded limits are a percentage of the initial limits.
He also said the cattle contracts hit the limit-expansion trigger more than other contracts at the CME, creating other trading problems. This was the reason for expanding the initial trading limits in October.
The new price-limit regime will limit levels for the feeder cattle futures at a ratio of 1.25 times the live cattle futures contract price limits, the CME Group said. It will establish a minimum initial price limit of $0.040 a pound for live cattle futures and $0.050 per pound for feeder cattle futures.
The mechanism is similar to the variable price limit mechanisms previous approved by the CFTC and implemented by the CME in April for lean hogs, the CME Group said.
REVERSION PLANS CHANGE
Changing back to the initial daily limits also would change, the CME Group said. Expanded limits would stay in place until the first four contracts in live cattle and feeder cattle futures settle below their initial limits, not the expanded limits, as is done currently.
And, if an expiring contract settles at limit the day before its last trading day, the expanded limit of that contract will be two times the expanded limit.
CATTLE, BEEF RECAP
Fed cattle trading was reported in the Plains this week at $105 to $106 per cwt on a live basis, steady to down $1 from last week. Dressed-basis trading last week was steady to up $4 at $168 to $172.
The USDA choice cutout Tuesday was up $2.21 per cwt at $229.68, while select was up $1.01 at $212.26. The choice/select spread widened to $17.42 from $16.22 with 72 loads of fabricated product sold into the spot market.
No steer or heifer contracts were tendered for delivery Tuesday against the Aug live cattle futures contract.
The CME Feeder Cattle Index for the seven days ended Monday was at $143.62 per cwt, down $0.42. This compares with Tuesday’s Aug contract settlement of $142.25 per cwt, up $0.25.