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By Staff | Feb 12, 2016

CME Group Inc., responding to criticism over price volatility in the cattle futures market, announced measures to help curb price swings while denying that high-frequency traders are to blame.

Cattle futures will be added to an existing CME system that caps how many order updates traders can send in relation to the number of trades they actually execute.

The change started Monday, chairman Terry Duffy said at a conference organized by the National Cattlemen’s Beef Association in San Diego.

The Chicago-based bourse, the world’s largest futures market, is also examining 5- to 6-second trading delays that would act as circuit-breakers.

“I will be very aggressive to drive home change for cattle futures,” Duffy said.

The curb on traders’ messaging was one of the steps the 28,000-member NCBA requested in a Jan. 13 letter to the exchange.

Cattle futures price volatility at the end of last year soared to the highest in at least a decade.

The NCBA said it suspects high-frequency traders, who use computer algorithms to execute deals measured in microseconds, are the cause of the elevated volatility, which it says undermines beef producers’ ability to use the futures market to protect against price swings.

Duffy told the conference the CME cattle contract is “potentially broke,” in that increasingly thin volumes are traded in the underlying cash market.

He said 10 percent of cattle futures trading is accounted for by high-frequency traders, compared with about 50 percent across all trading on the CME.


Corn closed the week 6 cents lower.

Last week, private exporters did not report any private sales.

Weekly export sales showed corn sales were 44.5 million bushels.

Annual sales are 954 mb, or 25 percent slower than last year’s pace.

This month, the market will search for a price level which will stimulate usage as the large 1.8 billion bushels of ending stocks reported in January will be difficult to reduce given current demand fundamentals.

With slow exports and ethanol output, a negative report in February is likely, which means ending stocks could widen even further.

Last year, U.S. farmers reduced corn-seeded acres to 88.9 million, the smallest since 2010. This year, U.S. corn producers are expected to plant 2 to 3 million more acres as winter wheat seeded acres were reduced.

As with every season, weather this spring will be important to the growing season. It won’t matter how many acres are planted if it doesn’t rain.

Producers should look to buy the weakness in the last half of February for a rally into the spring and possibly the summer if spring plantings are delayed and then the rains quit.

For February, additional downside risk is forecast until a weather problem develops this spring or summer as supplies remain large.

Strategy and outlook: Producers should use rallies to make additional sales or buy protection if storing the crop until a weather scare develops in the summer months.


Soybeans closed the week 12.75 cents lower.

Last week, private exporters did not announce any private sales.

Weekly export sales saw a net cancelation of 1.6 mb, a marketing year low. The export pace of the 2015/16 marketing year now stands at 1.492 bb, or down 10.5 percent from last year’s pace.

Normally, February looks to bring the addition of slower U.S. export sales as early planted beans in Northern Brazil begin to come to harvest and hit the world market at a price lower than any U.S. posted price.

It is the period between mid-February and May that South America over takes the U.S. as the primary port of origin for beans.

This will leave weather on late-maturing crops as the sole bullish factor for South American soybean values. February in Brazil and Argentina is like August here as it’s a key yield-developing month for three quarters of the crop.

If weather turns hot and dry, prices will rally sharply, however with good rains across the country, the price of soybeans should turn south and test contract lows.

Ahead of the USDA supply/demand report on Feb. 9, traders will anticipate USDA will slightly increase ending stocks as slow demand trends and crush margins are negative for the market.

Strategy and outlook: Producers should use rallies to make additional sales or buy downside protection if storing until the summer.

Do not store unprotected soybeans into the winter months.

This material has been prepared by a sales or trading employee or agent of Midwest Market Solutions and is, or is in the nature of, a solicitation. This material is not a research report prepared by Midwest Market Solution’s Research Department. Brian Hoops can be reached at (605) 660-1155.

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