CME Group says sequestration could affect livestock and dairy products

To Our Customers:

As you are aware, on March 1, 2013 a series of automatic federal spending cuts, known as sequestration, are set to begin. As a valued customer, we wanted you to be aware this is an issue we are closely monitoring, as its 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. In addition, the budget cuts could result in the disruption of USDA reports that are used in the daily calculation of the CME Feeder Cattle Index and CME Lean Hog Index and the monthly calculations used to determine settlement prices for CME Dairy futures products.

As the CME Live Cattle contract utilizes USDA grading/inspection in the delivery process, a furlough of USDA staff may require the Exchange to modify in accordance with Exchange rules the current operational process around delivery/settlement of these products. In addition, CME Group's cash-settled livestock and dairy products could also be impacted in the event the data used to compile these indexes is unavailable. Finally, CME Group's spot call dairy markets could be impacted in the event USDA grading/inspection staff is unavailable effective on March 1, 2013.

The list of CME livestock and dairy contracts that may be impacted, include:

  • Live Cattle futures Feb 2013 contract
  • Lean Hog futures and options, April 2013 and subsequent contracts
  • 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

We continue to closely monitor the potential for sequestration and the effect on our contracts and will keep you apprised of any potential changes to the delivery mechanism or settlement procedures for CME livestock and dairy contracts. Current procedures for the physical delivery of CME livestock and dairy futures can be found in our CME Rulebook -

All customer inquiries should be directed to Tom Clark at 312.930.4595. Media inquiries should be directed to Chris Grams at 312.930.3435.

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