Following October's sharp live cattle futures rally, the Chicago Mercantile Exchange (CME) voted to expand the daily maximum futures price move limit on a graduated scale. The CME made that decision to help the market find value and provide liquidity to give traders opportunities to liquidate positions in a dramatically higher market.
Now the lone cow in Washington State confirmed to have Bovine Spongiform Encephalopathy (BSE) has prices moving sharply lower. On Christmas Eve, cattle futures locked down the $.015 per pound limit on the open.
CME accelerates schedule to expand daily limit
Later on Dec. 24, the CME's Business Conduct Committee met to consider an emergency action to respond to market activity following the BSE discovery.
After full consideration of the impact on the cash and futures markets, the committee unanimously voted to accelerate CME’s schedule for expanded daily price limits in its live cattle and feeder cattle futures contracts.
For the live cattle futures contract:
- On Friday, Dec. 26, the daily price limit is $0.03 per pound.
- If the December 2003 or February 2004 contract month is locked either up or down the limit at the close on Friday, then the limit on Monday, Dec. 29, and on Tuesday, Dec. 30 will be expanded to $0.05 per pound.
- If either contract month is locked limit at the close of trading on Tuesday, Dec. 30, the limit on Wednesday Dec. 31 will continue to be $0.05 per pound. Otherwise it will revert to $0.03 per pound.
That means by the market close on Dec. 30 live cattle futures could be locked limit down at a price $0.13 below the Christmas Eve close.
The same accelerated schedule will be in effect for feeder cattle futures.
On Dec. 24, trading in live cattle and feeder cattle futures opened down the $0.015 per pound daily limit and remained limit down without trade for the rest of the day.
Summary of October trading limit revisions
CME’s daily price limit schedule was revised on Oct. 15, 2003. The schedule that applied prior to today’s emergency action was as follows:
- If either of the two contracts in the even month cycle nearest to expiration settles on the limit bid for two successive days or on the limit offer for two successive days, the price limit shall be raised to $0.030 per pound for all contract months.
- If the daily price limit is $0.030 and either of the two contracts in the even month cycle nearest to expiration settles on the limit bid for two successive days or on the limit offer for two successive days, then the price limit shall be raised to $0.050 per pound for all contract months.
- If the daily price limit is $0.050 and neither of the two contracts in the even month cycle nearest to expiration settles on the limit bid or limit offer, without regard to market direction, then the daily price limit for all contract months shall revert to $0.030 on the next business day.
- If the daily price limit is $0.030 and neither of the two contracts in the even month cycle nearest to expiration settles on the limit bid or limit offer, without regard to market direction, then the daily price limit for all contract months shall revert to $0.015 on the next business day.