What's Really the Underlying Issues Causing Market Volatility - Dr. Derrell Peel May Have the AnswerWed, 08 Mar 2017 12:36:22 CST
Problems with transparency, liquidity, volatility, etc. have challenged cattle markets for some time now. One problem that has been around for a few years and is in recent months even more prevalent is the convergence issue, which has allowed the futures market to align with the cash market by the time a particular contract is settled. According to Oklahoma State University Extension Livestock Market Economist Dr. Derrell Peel, who spoke recently with Radio Oklahoma Ag Network Farm Director Ron Hays, some of the more recent trade has exacerbated the convergence problem.
“We’ve talked a lot about volatility in the futures market both live and the feeder cattle contracts,” Peel recounted. “And of course, the markets have been playing catch up to this some what stronger than expected cash market. February live cattle futures just went off the board really struggling to catch up and not really reflecting that stronger cash market until the bitter end.”
Peel explains that when taking those February prices relative to where the summer months are priced, he says we have an extraordinarily large discount priced into the live cattle market.
“It’s already showing a significant drop from now until the April in the April contract,” he pointed out. “That in my mind, will be a little bit bigger discount than is really warranted, but the market knows that we do have more beef production coming.”
Peel believes a combination of fundamental issues are behind this, but also believes there are more structural problems at the core of the situation. He says this is causing the futures market to be much less effective for producers as a risk management tool.
Listen to Peel explain to Hays the underlying issues beneath the convergence of the markets, on today’s Beef Buzz.
The Beef Buzz is a regular feature heard on radio stations around the region on the Radio Oklahoma Network and is a regular audio feature found on this website as well. Click on the LISTEN BAR below for today's show and check out our archives for older Beef Buzz shows covering the gamut of the beef cattle industry today.
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