stock market board
The NCBA and R-CALF have urged closer scrutiny of the live cattle market.

WASHINGTON – Cattle stakeholder groups that often find themselves on opposite sides of industry issues appear to agree that volatility in live cattle futures warrants a closer review.

In a letter to members of the US Senate Judiciary Committee and the Senate Subcommittee on Antitrust, Competition Policy and Consumer Rights, R-CALF United Stockgrowers of America formally requested an investigation into what it calls “potential antitrust and anticompetitive conduct” in the cattle and beef markets.

R-CALF explained that market fundamentals supported historically high cattle and beef prices in 2014 and the first half of 2015. Those fundamentals didn’t change, but cattle prices collapsed and no one can explain this “wholesale collapse of the cash market or the intense volatility and collapse in the cattle futures market,” R-CALF said.

“During the third and fourth quarters of 2015, cattle prices collapsed farther and faster than during any time in history and the unprecedented volatility in the cattle futures market rendered it useless for price discovery purposes,” R-CALF said in its letter.

“Independent cattle feeders suffered losses never before experienced in our industry’s history. With losses exceeding $500 per head, it is likely the very foundation of the US cattle industry’s feeding sector — its independent cattle feeders — was irreparably damaged.”

R-CALF said it believes the market “succumbed to antitrust and anticompetitive conduct by dominant meatpackers and perhaps by certain traders in the cattle futures market.” Read the request in its entirety here

Terrence A. Duffy, CME
Terrence Duffy, executive chairman and president of CME Group

Meanwhile, the National Cattlemen’s Beef Association (NCBA) has turned its focus to high-frequency trading on the Chicago Mercantile Exchange (CME). In a Jan. 13 letter to Terrence Duffy, executive chairman and president of CME Group, NCBA outlined its members’ concerns.

“Exchanges such as the ones owned and operated by the CME Group have their basis in agriculture,” NCBA wrote. “For years, agricultural producers have utilized futures contracts to manage their market risk. The effectiveness of cattle futures contracts as a viable risk management tool is being called into question due to the concerns over high-frequency trading.”

The association requested for reforms such as limits on messaging for livestock contracts; a one-second delay between trade actions; audit trail data for analysis that includes firm-level generic identification; and more action regarding “spoofing,” an illegal practice in which an investor makes a buy order and then immediately cancels the order without filling it. Other investors may also issue buy orders, increasing the appearance of demand. An audit trail would provide insight into trading and market behavior. Duffy is expected to attend the NCBA’s convention and trade show in San Diego this week.

Live cattle futures for Jan. 26 climbed to the highest levels in nearly three weeks. February live cattle futures finished at $1.33 a lb. on the CME. January feeder cattle closed higher at $1.611. Gains in the US stock market along with signs of strong demand from packers in cash markets offset concerns about a gradual increase in supplies of cattle this spring.