Comment Text:
Dear Chairman Tarbert:
Five Rivers Cattle Feeding appreciates the opportunity to comment on the CME proposed Amendment to Increase Spot Month Position Limits for Live Cattle Futures.
Our major concern is the following statement the CME made in its submission:
“The Exchange conducted market outreach regarding the amendments. Market participants were generally supportive of or indifferent regarding an increase to the initial spot-month speculative limit. One market participant opined that the proposal could potentially provide speculative long position holders influence. Upon consideration of feedback from the market participants, the Exchange concluded that the increase in the initial spot-month limit will not result in any market imbalance as speculators (as well as commercials) may be long or short.”
Our belief is that little to no market outreach was done and the above statement above is not true. If this outreach would have been done we believe the feedback have been much more negative than the CME contends. Two years ago market participants were warned that the Live Cattle contract was in dire peril and spot limits would be reduced. As a result market participants made major efforts to support the Live Cattle Contract by establishing 3 new delivery points which we were told would help to keep the position limits in place. Fast-forward to today and now these exact delivery points are now supposedly able to allow an increase in spec longs by 33% during the first two weeks of the delivery period, how is this possible ? A more thorough and considered review would have shown that very little has changed from a deliverable supply stand point and that this significant change in Spec position length and that it only facilitates a few participants that look to increase their “market influence” during the first two weeks of the delivery month period. In no way does this create more liquidity and in fact it will deter convergence between the cash prices and futures prices as market participants hold on to their positions in hopes of the market “moving their way” which ultimately will create significantly more volatility during the delivery period.
I thank the CFTC for asking for comments and appreciate the opportunity to respond to the CME claims made in their submission.
Luke Lind
Five Rivers Cattle Feeding
