Sort & Cull

The CME live cattle and feeder cattle contracts opened on Monday's start with new daily and expanded limits. The live cattle futures complex previously had a daily limit of $6.75, but its new daily limit is now $7.50, and the new expanded limit is $11.25. The feeder cattle futures complex previously had a daily limit of $8.25, but its new daily limit is now $9.25, and its new expanded limit is $13.75.

Regardless of if you track and monitor the futures complex on a daily basis, or simply try to tune into the noon market report on your local radio station once or twice a week, cattlemen and traders alike know that the futures complex is subject to drastic and costly downward pressure far more often than the market sees upside support.

Take last fall, for example. The market began to plateau around Oct. 16, and by Dec. 7, the live cattle complex had fallen $22.85. Sure, there were some days in that time span when the market did close higher, but the complex's overall direction was down.

One of my biggest frustrations with the futures complex is that it takes months for the cattle contracts to add position to their markets, but when the tide turns and the market trades lower, in a matter of minutes dollars upon dollars can be sucked out of the market when prices begin to trade lower.

I don't believe that this decision to allow the contracts to trade in a wider range helps protect producers and mitigate market risk -- and, if anything, this will likely welcome more volatility and add additional risk and turbulation to the complex.

A mentor of mine once said, "Markets work best with active and informed participants," which is why I wanted to share this news with you today. The market is still trading at historically high prices, but with the opportunity to trade in a wider daily range, additional risk could creep into the complex.

ShayLe Stewart can be reached at shayle.stewart@dtn.com

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