KANSAS CITY SLICKERS
- Kansas City Slickers
I was reading some of the tweets between Cervino Institute and Save The Floor this morning and this caught my attention. Spot pricing in cattle right now is a derivative of futures price discovery and its a huge problem because the futures pricing isn't real. Market pricing is getting highly distorted by fund trade, HFT/ALGO, etc. First quarter trade in the cattle market was a prime example, as we came back from the holiday's and the funds felt the need to put 40,000 open interest in both the live cattle and feeder cattle markets and took the markets to price levels that were not economically feasible for either the packer to buy cattle or the feeder to place cattle with any margin what so ever.
I can tell you that the cattle the packer were forced to buy from Jan-March because of the run up in the futures market cost them $100-$200 per head loss and the cattle the feeder was forced to buy and place on feed were done so at a $100-$150 per head loss given forward margins at the time. And now we see what happens when they want to take that 40,000 open interest out of the market, it falls like a stone because there is no commercial or very little commercial participation in the market because no one wants to use the futures market any more to manage risk. Why can't some of these contracts be moved to KCBT and traded in an open outcry venue or at least if you are going to trade them on the screen it has to take place on system that is not perverted by FUND/HFT/ALGO trade.
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