The CME Group will launch two new futures contracts to help manage risk across the cattle supply chain.
John Ricci, Managing Director and Global Head of Agricultural Products with the CME Group, says the new contracts will bridge the gap between live cattle prices and the ground beef that’s sold. “Think of the beef trim contracts effectively as a burger contract, right,” he says. “What we wanted to do is really provide a tool for the industry to be able to effectively manage their price risk.”
He tells Brownfield the CME Group will offer contracts for a 90 percent and 50 percent Lean Beef Trim. “This allows both the domestic producer and the domestic importer, as well as exporters, to be able to utilize this contract,” he says.
University of Kentucky ag economist Kenny Burdine says this contract will provide additional market transparency. “What this will allow us to have a feel for now is at least some sort of feel for the expectation of trends in those markets,” he says. “We’ll be able to look a few months out and see, OK, how does the expectation for trim in the spring compare to what the current value is of trend?”
And while this contract is focused more on risk management in the supply chain, it could provide some insight for producers, especially related to the cull cow market. “Sometimes I think folks underestimate how significant cull cow values are to the revenue for a cow-calf operation,” he says. “Having some feel for that market and an expectation of that going forward may say something about the likely trend for those cull cow markets too.”
Trading for the Lean Beef Trim contracts is expected to begin July 20.
