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

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  • Schroeder, Ted C.
  • Tonsor, Glynn T.
  • Coffey, Brian K.

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.

Suggested Citation

  • Schroeder, Ted C. & Tonsor, Glynn T. & Coffey, Brian K., 2019. "Commodity futures with thinly traded cash markets: The case of live cattle," Journal of Commodity Markets, Elsevier, vol. 15(C), pages 1-1.
    • Handle: RePEc:eee:jocoma:v:15:y:2019:i:c:2
    DOI: 10.1016/j.jcomm.2018.09.005
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    References listed on IDEAS

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    Cited by:

    1. Lee, Seungho & Meslmani, Nabil El & Switzer, Lorne N., 2020. "Pricing Efficiency and Arbitrage in the Bitcoin Spot and Futures Markets," Research in International Business and Finance, Elsevier, vol. 53(C).
    2. Christopher N. Boyer & Charles C. Martinez & Joshua G. Maples & Justin Benavidez, 2023. "Price ranges from fed cattle negotiated cash sales," Applied Economic Perspectives and Policy, John Wiley & Sons, vol. 45(3), pages 1659-1671, September.
    3. Xinyue He & Teresa Serra, 2022. "Are price limits cooling off agricultural futures markets?," American Journal of Agricultural Economics, John Wiley & Sons, vol. 104(5), pages 1724-1746, October.

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    More about this item

    Keywords

    Fed cattle price; Thin markets; Price discovery; Futures markets; Formula pricing;
    All these keywords.

    JEL classification:

    • Q13 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Markets and Marketing; Cooperatives; Agribusiness
    • Q14 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Finance
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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