Back in August, the CME shared its plan to move the cattle contract's daily limits from $3.00 to $4.00 per hundredweight in the live cattle market and from $4.50 to $5.00 per hundredweight in the feeder cattle market. The expanded limits for live cattle would then advance from $4.50 to $6.00 and from $6.75 to $7.50 for feeder cattle.
On Oct. 19, the market had its first taste of the bewildering new limits as the November feeder cattle contract closed $4.95 lower.
Following last week's first big test of the fall run, the feeder cattle market had enough bearish realities of its own to balance and manage before enduring Monday's mass reduction. Last week, steer and heifer calves were called steady to $3.00 lower throughout the nation as producers shipped their calves to sale barns and hoped for healthy check. Though the feeder cattle market trades separately than the live cattle complex, the bearish pressures of the live cattle market added to the feeder cattle market's stress. Higher corn prices, lower boxed beef prices and a weaker cash cattle market leaves very little room for cow-calf producers and feeders to be hopeful.
The purpose of the futures market is to mitigate risk, act as a protection tool and to forecast prices at some point later down the road. The problem with such vast limits is that the market is volatile day in and day out regardless of what's happening fundamentally. Cattlemen can understand that as the price of corn scales higher, feeder cattle prices are going to wane. But when a market has volatility because of fund-related selling, producer's assets are at risk. With the market's new platform, cattle contracts sit ripe for day-trading havoc.
Tune into last week's Cattle Market News Update on the DTN/Progressive Farmer Facebook Page, or click the link below to hear last week's cattle market highlights: https://www.facebook.com/…
ShayLe Stewart can be reached at ShayLe.Stewart@dtn.com
(c) Copyright 2020 DTN, LLC. All rights reserved.