Nation's Mega Beef Packer Involved in Chicago Mercantile Exchange (CME) Cattle Futures
Transaction that Resulted in a $220,000 Remedial Sanction Against a CME Futures Trader
Billings, Mont. - In accordance with its member-developed policies, R-CALF USA set out to reform the cattle futures market to restore that market as a viable tool for live cattle producers who want to manage the risk of volatility in the cattle market. Toward that end, R-CALF USA joined other commodity producer groups and commodity end-users to form the Commodity Markets Oversight Coalition (CMOC), which was instrumental in passing the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Wall Street Reform Act) that effectively limits the excessive speculation R-CALF USA believes is distorting the cattle futures market. Since passage of the Wall Street Reform Act, R-CALF USA has been working to help the Commodity Futures Trading Commission (CFTC) to write effective rules, as well as to ensure the agency has sufficient funding to enforce those rules.
"Our primary concern is the major packer that controls our cattle markets also was engaged in practices that manipulated the futures market to its own benefit," said R-CALF USA Marketing Committee Chairman Dennis Thornsberry. "While packers have a right, just as producers do, to use the cattle futures market to hedge their risk, we've suspected for years that they were using strategic speculation practices to drive down the futures price of cattle as well as the cash price."
Today, the CFTC issued an enforcement announcement involving a cattle futures trading transaction that involved one of our nation's largest beef packers - JBS USA, LLC (JBS) (http://www.cftc.gov/PressRoom/PressReleases/pr5981-11.html), which indicated that a transaction in the Chicago Mercantile Exchange (CME) between JBS and its futures trader - Newedge USA, LLC (Newedge) resulted in Newedge paying $220,000 in remedial sanctions for violating the futures trading laws, including the Wall Street Reform Act.
Specifically, the CFTC states that Newedge purchased 4,495 October 2009 live cattle futures contracts on the CME from their client JBS, and then Newedge sold JBS an over the counter swap (OTC) in live cattle on Oct. 9, 2009 - a transaction that caused Newedge to exceed the 450 contract speculative limit for trading live cattle by 4,045 contracts. The CFTC Order further states of the transaction: "On Friday, October 9, 2009, Newedge and JBS, a live cattle end user, agreed that JBS would sell Newedge 4,495 contract long October 2009 live cattle futures position. Newedge would hedge the purchase with a short position in an underlying swap in live cattle and sell JBS a live cattle swap."
According to the CFTC, Newedge earned $80,910 in total profit and commissions on related transactions with JBS.
"We applaud the CFTC for this enforcement action and urge the agency to investigate the cattle futures market even further," Thornsberry concluded. "If JBS can pay its trader over $80,910 in this type of dubious and complicated Wall Street-type transaction, you can bet that JBS profited greatly and that the ultimate losers were hard-working cattle producers who had no idea the deck was stacked so solidly against them.
R-CALF USA (Ranchers-Cattlemen Action Legal Fund, United Stockgrowers of America) is a national, nonprofit organization dedicated to ensuring the continued profitability and viability of the U.S. cattle industry. R-CALF USA represents thousands of U.S. cattle producers on trade and marketing issues. Members are located across 46 states and are primarily cow/calf operators, cattle backgrounders, and/or feedlot owners. R-CALF USA directors and committee chairs are extremely active unpaid volunteers. R-CALF USA has dozens of affiliate organizations and various main-street businesses are associate members. For more information, visit www.r-calfusa.com or, call 406-252-2516.
