Some CME Group Livestock and dairy contracts that depend on USDA grading and inspections could be impacted by across-the-board spending cuts. Should the mandatory cuts begin on March 1 - CME’s Managing Director of Agricultural Products Tim Andriesen says the physical delivery and cash settlement mechanisms of certain CME livestock and dairy products could be affected. That’s because the CME’s live cattle contract is dependent on USDA staff that might be furloughed as a result of the cuts. Exchange rules to allow CME to modify the delivery and settlement rules pertaining to the contracts if USDA staff isn’t available. CME hasn’t said if other contracts that could be impacted have rules that could be modified to allow for trading. Reuters has reported that cash settled livestock and dairy products require data that may be unavailable because of sequestration. Furloughs for USDA’s grading and inspection staff would also impact the exchange’s spot call dairy markets. In addition - if USDA’s regular schedule of reports is altered by the sequester - 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.
According to CME - the following contracts may be affected by the budget cuts: 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.