CHICAGO Feb 26 Trading in Chicago livestock
futures has declined this week as traders worry that furloughs
at the U.S. Agriculture Department, due to federal automatic
spending cuts, will disrupt cattle and hog marketings and price
At question is whether the furloughs will impact the
agency's Agricultural Marketing Service (AMS), which among other
things generates prices used as benchmarks for some livestock
contracts on the CME Group's exchange.
The U.S. Department of Agriculture has said 8,400 meat
inspectors could be idled by the automatic budget cuts, set to
come into effect on March 1, but has not said how the AMS will
Cattle traders are playing it cautious. Commercial traders
and speculators have been taking money out of the market during
the past week because they do not know if they will be able to
unwind those positions once the spending cuts are enacted,
This action has limited gains in livestock futures despite a
winter storm in the U.S. Plains that could disrupt cattle
"Most of the time we would have guys buying just on this
storm alone and being a little bit more aggressive but with this
uncertainty it has got guys sitting on their hands a little
bit," said Jason Britt, president of Central States Commodities
in Kansas City, Missouri.
A CME spokesman said on Tuesday it was closely monitoring
the possible impact of the budget cuts but did not say if
trading in affected contracts would be halted. The exchange
operator also said it would keep its customers informed of
potential changes to its delivery or settlement procedures due
to the cuts, which will be enacted on Friday.
CME said last week that exchange rules allow it to modify
the delivery and settlement rules pertaining to its live cattle
contracts if USDA staff is not available for grading and
inspections. The exchange did not say if other contracts
affected by the cuts could also be modified.
Market players said the uncertainty could be seen in recent
price activity. CME live cattle prices have risen just
0.5 percent during the past week, despite the severe winter
storms that have dumped more than a foot of snow in parts of
Kansas and Texas and that will likely slash weight from feedlot
Daily trading volume in CME's live cattle futures has
averaged just 43,787 contracts since the exchange operator
announced it could be affected by the sequester on Thursday,
down from 58,255 contracts during the previous week.
Concerns that a glut of livestock could develop if USDA
inspectors are unavailable have kept cattle prices in check,
"Feeder lots are real nervous that they are not going to be
able to move this product," said Tom Grisafi, president and
chief executive of trading firm Indiana Grain Co.
Cash settled livestock and dairy products require data that
may be unavailable because of the sequester, CME said last week.
Additionally, the daily calculation of the CME Feeder Cattle
Index and CME Lean Hog index, the monthly calculation used to
determine settlement prices for CME Dairy futures products, and
spot call dairy markets could be disrupted.
U.S. Agriculture Secretary Tom Vilsack has said that it
could be months before a threatened shutdown of U.S. meat plants
would occur because of a furlough of meat inspectors. USDA
employees get from 30 to as many as 120 days notice of impending
layoffs. By law, plants cannot ship meat without the Agriculture
Department's inspection seal.
The $85 billion in automatic across-the-board spending cuts,
are set to take effect on March 1 unless Congress can come up
with a deal to avoid them. Food inspections, air traffic
control, law enforcement and education programs also would be
among those hit.