Call For Liquidity In Futures Markets
Center Cattle Report
volatility has plagued the CME cattle futures for a couple of years. Price
moves like this past week are all too frequent and leave industry players
scratching their heads as to the causes of the largely unexplained moves.
Solutions have been widely varied and certainly moves by the Exchange to
pare trading hours to the daytime session certainly helped. The problem
boils down to contract construction and traders who are unwilling to trade
a product they canít see and/or understand. This in turn impacts liquidity
and lower liquidity means higher volatility.
is no way to prevent market moves or sudden changes in price caused by
market events or news. This is healthy. Markets react to live and continuing
news surrounding the marketplace. Sometime that news is disruptive to the
point of causing limit moves. Less significant news reports have smaller
impacts. Traders attempt to take new information and act on it in an effort
to capture market impacts. This is the way markets should work.
internet has introduced a new dynamic into the market Ė quick delivery
of information and the potential for viewing the impact on the cash market
in real time as transactions occur. This tool has been underutilized by
the beef industry but the CME will introduce a new Bitcoin futures product
on December 18th. The Bitcoin cybercurrency is capturing headlines for
its runaway skyrocketing price. Traders in the futures price will be able
to view the cash market in Bitcoin as it occurs and the futures contract
will cash settle to the latest price in the spot market. The Bitcoin market
is built on blockchain technology that has broad applications in the cattle
CME feeder contract is cash settled but the model for calculating the cash
index and the method for gathering of data are outmoded and CME is looking
for new technologies to gather and calculate the index. No technology fits
the need better than a blockchain or series of time stamped buy/sell feeder
transactions linked together in a manner that creates a fully transparent
market in feeder cattle. A blockchain will instill confidence of all traders
and industry players in the integrity of price settlement as would a blockchain
in the live contract.
feeder market is challenged in a way not present with fed cattle sales.
Fed sales are all consummated through four primary beef processing companies
thus providing the infrastructure for reporting of almost all transactions
in the fed cattle trade. Feeder cattle are traded through an opaque network
of hundreds of dealers and direct farmer to feedlot relationships. This
requires a foundation to force the reporting for yearlings and calves sold
in the marketplace.
the national cattle herd with an ID for each animal is just such a foundation.
This would create the need for reporting each transaction as it occurs
because each buy/sell trade involves a change in ownership that must be
reported to the national datastore. Along with capturing an ownership change
both change assuring the proper title and lienholder, the transaction would
create a price point for the transaction and link it into the blockchain.
Blockchains are the perfect vehicle for handing each transaction and provide
the complete unimpeachable record of the cash market in all cattle trades.
This instills confidence into the marketplace for futures and recruits
new traders. Those traders, who have previously stood aside from the cattle
futures, bring the necessary liquidity our markets sorely need.