TEXAS TO LEAD EFFORT ON NEW STOCKER FUTURES CONTRACT

COLLEGE STATION — The Chicago Mercantile Exchange will begin its series of nationwide educational meetings in Texas next spring to teach ranchers how to use its Stocker Cattle Futures contracts which started trading Nov. 30.

Few outside the trading community know about the new commodity contract, and officials hope producers will begin to watch the market to understand how it works, then use it to manage economic risks.

“It’s going slow right now, which we expected,” said Clinton Hakes, a director in CME’s commodity marketing and education department. “But we decided to go ahead and start the contract before educating the ranchers so that if there are any changes we determine need to be made, then that can go into effect before trading gets very active.”

CME and the Texas Agricultural Extension Service will conduct the first educational meeting on stocker futures trading in Victoria, followed by one in College Station. The seminars will be in April after the state’s calving season subsides.

Hakes said the commodity exchange plans to begin advertizing the contract after the first of the year and will set up more seminars across the nation to follow those in Texas.

Stocker cattle are young animals that are too small to be placed in a feedlot, so they are grazed on pasture until they gain additional weight, according to CME. The new contracts are for 25,000 pounds of 500- to 599-pound steers an amount and size range easily found in Texas, says Dr. Ernie Davis, Extension livestock marketing specialist.

Davis, who was asked to help ring the starting bell for trading in Chicago Nov. 30, said the new contract offers a better fit for Texas ranchers than the CME’s existing feeder cattle futures contract.

“The feeder contract calls for 50,000 pounds of 700- to 800-pound animals,” Davis said. “The new stocker contract is for 25,000 pounds which closer fits the size for our ranchers in Texas and even elsewhere in the United States.”

To settle a contract on the former feeder contract, a typical Texas rancher would need perhaps 100 animals, Davis explained, whereas the new stocker contract would more likely require about 50.

The mercantile estimates that nearly 800,000 calf producers in the nation could use the new stocker contract to manage economic risks of downside price movements.

Davis said he began discussing the possibility for a stocker futures contract with CME in 1991 because Texas ranchers weren’t using the feeder contract due to the heavier weight requirement.

“This brings the Chicago Mercantile Exchange back to the ranch,” Davis said, noting that CME had decided to open the stocker contracts after first fine-tuning existing livestock contracts and analyzing whether a new contract would compete with or compliment current ones.

Davis said that in addition to the instructional meetings for Texas ranchers he plans to post stocker contracts trading information on his Website, <http://livestock-marketing.tamu.edu>.

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