NCBA opposes cash settlement of live cattle contracts
In November the NCBA/CME Working Group sent a letter to the CME Group regarding cash settlement of the Live Cattle contract. In the letter, Craig Uden, NCBA President-elect and Chairman of the NCBA/CME Working Group, emphasized the group’s continued opposition to cash settlement as well as the development of NCBA policy in favor of physical delivery.
“Our membership voted unanimously in favor of this policy, not only because we think there are particular benefits to contract settlement by physical delivery,” Uden writes, “but also because we believe strongly that there are at least several key disadvantages to settlement by cash index.”
The letter lists several of these concerns which include being non-representative of real-time value, increased basis volatility, increased incentive of contract price manipulation, and uncertainty about the process when left in the hands of the federal government. Uden acknowledged the need within the industry to increase negotiated cash trade and price discovery and points to efforts, such as the Fed Cattle Exchange, to do just that.
Together the NCBA/CME Working Group and the CME Group have been working to address industry concerns and NCBA urges the CME Group to focus on other improvements to the Live Cattle contract instead of moving forwards with cash settlement.
Hay production has been reported to be 50% of average or less in many areas of Nebraska. The U.S. hay supply is at a 50-year low (Table 1). Couple this information with rising costs (Figure…