That is what I figured or if you don't spread, swing by the option pit, buy slightly OTM puts in case above situation arises. In that case, you can scalp in/out around that limit up/down area w/o having that catastrophic scenario. In addition, if it is that chaotic, you would be probably be one of the few locals making mkts w/c could be good since the paper it at your mercy when shit hits the fan. I remember one of war stories of Mark Fisher in his book when brokers needed him to supply liquidity and the broker said "make a bid, any handle you want! Needless to say it was a 6 figure payday! Thanks
February cattle closed limit down across the board following news of an outbreak of mad cow disease on Wednesday. There was a pool of some 10,000 contracts left unfilled at limit down in the February contract. Trading limits are expanded to 300 points on Friday and 500 points on Monday if need be. Based upon option trade today, February futures are valued at $73, which is some $16.17 below current futures prices. Look for a limit down opening in Friday's holiday shorten trading session. January Feeder cattle closed limit down on Wednesday along with the rest of the contract month's following news of an outbreak of mad cow disease. The limit down close sets the stage for a limit down opening on Friday. January feeders showed a synthetic bid of $75, which is $18.72 below current futures prices. Trading limits are expanded to 300 points on Friday and 500 points on Monday if need be. - INO I am surprised that the charts around 12/9 (the date the "downer" was discovered) do not seem to reflect any unusual move. Are these "downers" common? Also, if a limit move persisted through some real important notice date or delivery date, what hapens? The CFTC shows some 104,000 contracts (40,000 pounds). :eek: Geo.
"Are these "downers" common? " a downer just means a cow that is down on the floor when it arrives at the packing plant. it is a common thing that is usually from an accident or from being trampled in the truck on the way to the packing plant. when they transport these animals they stuff dozens of them into a truck together. as the truck takes off and stops it shifts the animals around and some of them get trampled and cant get up at the destination. usually this doesnt hurt the meat. sometimes like this time it is because the animal is sick and shouldnt have been sold. the farmer has an economic interest to sell sick animals and sometimes will try to get rid of them if he suspects a problem because if the animal dies he can lose $1000 or more.
Cattle futures sink for a third session Prices end at 'limit-down' levels; pork, corn futures rise By Myra P. Saefong, CBS.MarketWatch.com Last Update: 2:55 PM ET Dec. 29, 2003 SAN FRANCISCO (CBS.MW) -- Cattle futures plummeted for a third-straight session Monday as a recall of U.S. beef in eight states sparked by last week's discovery of a mad-cow case in Washington state fueled fresh selling. Closing with their maximum allowable decline on the Chicago Mercantile Exchange, February live cattle fell 5 cents, or 5.8 percent, to 81.175 cents per pound. January feeder cattle did likewise, dropping 5 cents, or 5.5 percent, to end the session at 85.725 cents per pound. As of Monday, the CME has expanded its cattle-contract limits to 5 cents per pound. Live and feeder cattle futures also closed at "limit-down" levels during a shortened trading session on Friday, giving back just over 3 cents per pound, in a carryover from a Christmas Eve selloff. See related story. Brian Westbury, an analyst at investment bank Griffin Kubik Stephens & Thompson, said "four or five days of limit down under the new rules would not surprise me at all." And he expects cattle prices to fall into the 60s. The Department of Agriculture's discovery of the mad-cow case, a first in the United States, prompted Japan, the biggest importer of U.S. beef, along with several other countries, to ban U.S. imports of the meat. "If U.S. beef is ever going to be exported again, the USDA is going to have to convince the world, and especially Japan, that they are doing a better job at screening for disease," said Todd Hultman, president of Dailyfutures.com, a commodities information provider. Right now, he said, the U.S. only tests around 20,000 head of cattle -- out of the 34 million head that are slaughtered in the U.S. each year -- for bovine spongiform encephalopathy, or BSE, which is also known as mad-cow disease. The USDA could move to a rapid screening process to check for a far greater percentage of cattle, he said, but so far "it looks like they are trying to negotiate for the least amount of change," he said. "That is a big mistake, and the consequences are jeopardizing the export market in 2004," Hultman said. For his part, Westbury pointed out that "the cattle industry and D.C. politicians are doing a fair job of lessening the hysteria," and, as a result, "we may see estimates of consumer demand weakness trimmed back." 'Wait-and-see game' Pork futures on the CME closed higher, with February pork bellies up 0.8 percent at 87.075 cents a pound and lean hogs up 1.4 percent at 53.925 cents a pound. Cheaper beef doesn't necessarily shift pork demand, said Chuck Levitt, a senior livestock analyst at Alaron Trading. "The hog industry is on hold right now, holding its breath, to see what kind of fallout from the cattle situation unfolds," he told clients. "It continues to be a wait-and-see game." Over on the Chicago Board of Trade, corn futures headed higher. March corn closed up 1.3 percent at 242 3/4 cents a bushel. Exports for corn are up 16 or 17 percent from a year ago, according to Dailyfutures.com's Hultman. Corn is used to feed cattle.
Marketsurfer and others: Retail traders and others who may not be knowledgeable could get caught in limit markets. Pros usually don't get hurt this way because they hedge in related markets or with options in the primary market. Options for Feeder Cattle for instance, were available throughout the day. I know it's fun to talk up the urban legends, but we all have to come back to reality sometime. Good luck in the equities markets. Best Regards, Steve46
Marketsurfer et al: Sorry, I read the rest of the posts and see that others have already replied with the right info. You have the facts by now and don't need my comment. Regards, Steve46
Most-active Feb wasn't Monday as that month opened and closed at the same 81.17 cents per pound limit-down price, or 6%. Distant 2004 cattle futures contracts from Jun to Dec did not decline to their limit floors amid hopes that the cow in question came from Canada and the U.S. could use that as a basis to ask countries which historically import U.S. beef to resume U.S. beef imports. Also, concerned about the impending Dec live cattle expiration this Wednesday, the CME announced after the close that, for Tuesday's trading session only, if the Dec live cattle contract becomes limit bid or limit offered, then after a one-hour period during which the market shall continue to be open for trading at the 5 cent limit, the daily price limit for the Dec contract only shall be expanded by 2.5 cents per pound to a total daily limit of 7.5 cents per pound for the remainder of the trading day. On Wednesday, the daily price limit for the Dec only shall revert to the 5-cent per pound limit. Of course, if the 5-cent limit is not hit in Dec until 1200 CT (1800 GMT), then no expanded limit would be possible. Monday's emergency action to increase live cattle futures daily price limits was the CME's second in three sessions. On Christmas Eve, the CME also acted to increase the daily cattle price limit to 3 cents per pound for last Friday and 5 cents for Monday. Also, as scheduled, CME livestock futures closes one hour early at 1200 CT (1800 GMT) on Wednesday. Unlike many futures contracts, CME cattle futures are still settled by physical delivery if a contract has not been offset before its expiration. Each futures contract consists of 40,000 pounds of 55% choice, 45% select grade live steers averaging between 1,100 pounds and 1,350 pounds with no individual steer weighing more than 100 pounds above or below the average weight for the unit. There are usually about 33 head of cattle per contract.