Agricultural News
CME Group Insider Delves into the Causes and Cures of the Volatility Seen in Recovering Markets
Wed, 14 Dec 2016 17:13:47 CST
Cattle producers were biting their nails a lot this fall wondering when the volatility in the future market would subside. Today, the markets seem to have found a better foothold and seem to be leveling out some. Radio Oklahoma Network's Associate Farm Director Carson Horn took a recent opportunity to speak with David Lehman, managing director of commodity research and product development for the CME Group, about what measures his organization is taking to fix the issues in the market and what results he predicts to see happen.
"We're working really hard with the industry on livestock markets, cattle in particular," Lehman said, citing the efforts of the working group with the National Cattlemen's Beef Association. "We reduced our trading hours in February, we added livestock to a messaging efficiency program in February as well. We also then made some changes in the contract. We increased the quality to 60 percent choice, 40 percent select, put a seasonal discount in one of our delivery points in Worthing, South Dakota and continuing to look at the delivery mechanism in general."
Lehman believes these steps have and will continue to help the markets recover. In fact, he says he believes the markets have bottomed out, and that the volatility we've experienced stems simply from the natural cycle of the cattle industry. He suggests, too, that the cash market's move from negotiated trade to formula pricing has added its own difficulties to the mix.
"I think the volatility, we're trying to get a better handle on how we can manage that in our contract," Lehman said. "But really, I think we're seeing some liquidity gaps in the futures and I think that directly relates back to the lack of transparency in cash markets."
While he maintains that the CME Group is dedicated to finding solutions to better manage volatility, wherever the causes lie, Lehman also believes the markets have a way of fixing themselves.
"We're just going to continue to work with the industry to do whatever we can to make sure our contract is working as good as it possibly can for the end user," Lehman said, but added. "As they say in the markets, the greatest cure for low prices, is low prices. That causes producers to cut back and causes consumers to increase what they consumer and the market will self-correct overtime."
Listen to Horn's entire conversation with Lehman about the futures market as it recovers from recent volatility, by clicking or tapping on the LISTEN BAR below.
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