What Will It Take to Improve the Way Cattle Futures are Traded? Dr. Joe Janzen Has a Few IdeasWed, 24 Apr 2019 10:35:26 CDT
Dr. Joseph Janzen is an ag economist from Kansas State University who presented at a recent conference on agricultural futures in Kansas City, hosted by the Commodity Futures Trading Commission. While touching on both grain and cattle markets, Janzen focused on the limits in our agricultural futures trade - pointing out some significant differences between grain and cattle futures. His ideas were presented with a backdrop of the ongoing discussions that have taken place among cattle industry stakeholders and the CME Group that have attempted to improve live and fed cattle contracts to more accurately reflect the market and reduce recent volatility.
“On the grain side, we’ve seen maybe just a handful of limit move days. On the cattle side, we see limit price moves all the time because the limits are just set a lot tighter. So, maybe it’s a good idea to have some adjustability in how these limits are imposed and the question is, do we want to leave that up to the CME to change whenever they think it’s a good idea - or do we want to build in a mechanism to make those limits more adjustable?”
According to Janzen, with grains the limits basically change with the ebb and flow of price. In cattle futures, they have not been changed in 15 years or more. This has led to the situation the industry finds itself in now where the limits are buying all the time causing a loss in price discovery and increased uncertainty. Janzen says this is probably going on at significant expense to those who use the markets. He clarifies that while his presentation is not meant to impart any suggestions, he instead hopes it stirs discussion and prompts stakeholders to consider their available options for improving the way in which these markets function. Overall, he contends that the market’s policies and rules should be made more flexible and adjustable to fit the market’s condition as it happens.
“It’s helpful to have a robust discussion about how we set the rules of the game and to consider the trade offs for different participants,” he explained. “Because, ultimately, these markets exist for the participants and for the public at large who use prices that are set in this market as a signal, so we want to make sure everyone’s voice is heard and that we set the rules of the game in a way that’s the most fair to the most people.”
Listen to Janzen explain his position on how the ag futures markets can be improved, with Radio Oklahoma Ag Network Farm Director Ron Hays, on today’s Beef Buzz. To view his complete powerpoint presentation delivered during the aforementioned conference, click here.
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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