Commodity futures with thinly traded cash markets: The case of live cattle

Ted Schroeder, Glynn Tonsor and Brian Coffey

Journal of Commodity Markets, 2019, vol. 15, issue C, -

Abstract: Negotiated cash markets have thinned in many commodities over time as alternative marketing agreements have become increasingly prominent. Thinning cash markets challenge information which facilitates price discovery for both cash and futures markets. The US live cattle cash market has experienced a substantial structural shift toward non-cash market trade in recent years leading to sporadic trade across market regions that appear at times to be segmented markets. At the same time, the cattle market has realized immense price volatility making judicious price risk management by producers essential. However, hedging risk has also increased. This article illustrates the nature of changes affecting hedging effectiveness in light of thinning cash markets in fed cattle and discusses a variety of actions that have been considered to try to mitigate concerns.

Keywords: Fed cattle price; Thin markets; Price discovery; Futures markets; Formula pricing (search for similar items in EconPapers)
JEL-codes: G12 G14 Q13 Q14 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jocoma:v:15:y:2019:i:c:2

DOI: 10.1016/j.jcomm.2018.09.005

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