February 21, 2013 / 4:00 PM / 5 years ago

CME livestock, dairy contracts at risk from sequester

CHICAGO, Feb 21 (Reuters) - Automatic U.S government
spending cuts may affect some CME Group livestock and
dairy contracts that depend on U.S. Agriculture Department
grading and inspections, the exchange operator said on Thursday.
    A spokesman for the CME did not say if the exchange would be
forced to halt trading in some contracts due to the cuts. 
    "It's possible mandatory spending cuts - should they begin
on March 1 - could have an impact on the physical delivery and
cash settlement mechanisms of certain CME livestock and dairy
products," Tim Andriesen, CME's managing director, agricultural
products said in a letter to customers.
    The $85 billion in automatic across-the-board spending cuts,
known as the "sequester" 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.   
    The CME's live cattle contract is dependent on USDA staff
that may be furloughed due to the spending cuts. CME said
exchange rules allow it to modify the delivery and settlement
rules pertaining to the contracts if the USDA staff is not
    CME did not say if other contracts that could be impacted by
the cuts had rules that could be modified to allow for trading.
    Cash settled livestock and dairy products require data that
may be unavailable because of the sequester. Additionally,
furloughs for the USDA's grading/inspection staff will impact
the exchange's spot call dairy markets.
    The daily calculation of the CME Feeder Cattle Index and CME
Lean Hog index, as well as the monthly calculation used to
determine settlement prices for CME Dairy futures products, 
could also be disrupted if the USDA's regular schedule of
reports is altered by the sequester.
    CME said the contracts that may be affected by the budget
cuts include:
    * Live Cattle futures Feb 2013 contract
    * Lean Hog futures and options, April 2013 and subsequent
    * Feeder Cattle Futures, March 2013 and subsequent contracts
    * Milk (Class III and IV), Butter, Cheese, Non-Fat Dry Milk,
and Whey March 2013 and subsequent contracts
    * Spot Call (Butter, Cheese and Non-Fat Dry Milk), March 1
and subsequent trading days
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