Kim Ulmer says cattle producers should demand change to the CME
April 17, 2017
At the end of March, cattlemen from across the country traveled to Washington, D.C., to take part in the National Cattlemen's Beef Association Legislative Conference. These ranchers met with key congressional and agency leaders to articulate top industry policy priorities.
Among the group was Kim Ulmer from Huron, S.D.
Ulmer is the president of Livestock-R-Us, LLC, and his mission for the trip was to share his concerns about the Chicago Mercantile Exchange with agricultural influencers.
Ulmer started the Protect The Producers Movement to fight unfair practices exhibited by the CME. For nearly a year, he's shared his message and encouraged producers to fill out a survey on the topic. More than 600 people have filled out the survey so far, which can be found at http://www.livestockrus.com. Ulmer took the results of the survey with him when he met with elected officials in Washington.
“Producers in South Dakota have seen a 50 percent drop in net farm income.” Sen. Mike RoundsAgriculture Assistant
"The Protect the Producers Movement was started to protect all 700,000 of the nation's beef producers," Ulmer said. "CME has been allowed to write their own rulebook to their advantage and caused problems that are putting producers out of business. The globalized board of trade owned by CME Group is a major problem to the livestock industry. It creates false valuations and is not a risk management tool for the American livestock industry. The government regulation system has allowed them to be a self-regulated organization (SRO), and to change the board of trade from a commodity future to a commodity casino."
In conjunction with NCBA's Legislative Conference, Ulmer set up his own meetings with key officials and had face-to-face time with Sen. John Thune's agriculture assistant, Sen. Mike Rounds, Rep. Kristi Noem, the Commodity Futures Trading Commission, USDA Ag Marketing Service, the Senate Ag committee, Senate committee for commodities, risk management and trade. He also met with newly appointed USDA Secretary of Agriculture Sonny Perdue's office, as well as several individual senators and representatives who were in the building during his visit.
"The most important meeting was with the CFTC; they listened to me for over an hour as I explained what has happened to our industry," he said. "When we met with the USDA Ag Marketing Service, I explained the volatility created around the cattle on feed reports and how they use the auction marketing reporting service as an average of several different states and how it hurts the northern producers that have higher quality cattle."
At the end of his busy day of lobbying, Ulmer had left 35 reports with key influencers, and he is hopeful it will result in positive change for the beef industry. The solution could be found in new rules written in the upcoming farm bill or pressure placed on the CME from Washington to change its practices.
"Who made it legal for the CME to create a gambling format that affects over 700,000 producers and not have to worry about the delivery of perishable commodities?" Ulmer asked. "Every time you own an animal as an investment in the cattle business, you pencil in a 1 or 2 percent death loss on the investment. Cattle need to be sorted and get loaded and hauled, and they can get hurt and be dead a few days later if they are not properly managed. Speculators that want to be involved with livestock should have to take the same risks as we do. The billionaires on Wall Street wouldn't be so eager to create trading rumors if they had to deliver like we do, then we would watch their load of cattle drop by 50 percent and we would be the buyer at half price."
Ulmer is currently working on an American Mercantile Exchange to better represent U.S. beef producers; however, his ultimate goal is to change the CME to an asset-based commodity market.
"Every time the traders gamble, they devalue our producers; it's lose-lose for the American cattleman," Ulmer said. "Ranchers and farmers aren't gamblers that want to try to compete in a gambling game with a billion-dollar corporation. They need a forward contracting commodities contract for the amount of commodities they offer. There might be 2 percent of the farmers in America that could worry about position limits. Only the high-rolling fund companies or investors attempt to roll over a market. Since it isn't asset based, they have the funds and cash to cause a sharp increase or decrease in a market, and that's what we need protection from. If the American producer had the right to check and demand delivery for an actual product that market would have stopped dropping real fast during the $80 per hundredweight drop in 2015. It needs to be asset based to be a true commodity futures contract based on supply and demand, then we will see honest and fair valuation."
Ulmer's concerns are shared by many beef producers, and the National Cattlemen's Beef Association's CME Working Group has already made progress in implementing some important changes to the CME.
"With the coinciding market volatility, we've been asking the same questions that Mr. Ulmer has been, so a year-and-a-half ago, NCBA started a CME working group to address some of the concerns," said Colin Woodall, NCBA vice president of government affairs. "One of the biggest things that we were able to accomplish was to draw attention to the CME and that they didn't have a messaging policy as far as how many messages or trades that could be entered into their systems. Getting a limit on that was one of the stronger opportunities we had to stall the volatility, and this was put into place shortly after we started this effort."
The working group has allowed key industry leaders a spot at the table to discuss with CME some of their ongoing concerns.
"In order to have a strong futures market, you have to have a strong cash market," Woodall said. "That's why the Fed Cattle Exchange got put in place. That has been working heavily since the fall, and it has definitely helped with cash trade. NCBA and the industry as a whole have worked hard with CME and CFTC to make sure these issues are addressed and ensure we have a futures market that works and a cash market that supports the futures contracts."
"Nothing is more important than the integrity of our markets," said David Lehman, CME Group managing director of research and product development. "Working with the industry, our goal is to ensure our cattle futures contracts continue to help a wide range of producers, packers and other commercial and financial participants to discover prices and hedge their risk — very critical functions for these individuals and businesses. CME Group does not operate the cash markets Mr. Ulmer describes, but we have expressed concern about cash markets needing greater transparency to serve as an effective underlying market. We applaud NCBA, the Fed Cattle Exchange and other livestock groups for their efforts to improve cash market transparency over the past year."
Following Ulmer's visit, Thune said, "As we prepare to draft the next farm bill, and as a member of the Senate Agriculture Committee, I will be reviewing all proposals and recommendations, including those raised by Kim Ulmer, to determine the best path forward to address low livestock prices and market volatility."
Rounds shares Ulmer's concerns about the state of the beef cattle industry and wants to take action to help producers back home.
"Producers in South Dakota have seen a 50 percent drop in net farm income," Rounds said. "That's a serious problem, and producers can't sustain these kinds of low cattle and commodity prices for an extended period of time. I'm concerned about the CME organization intentionally reducing what they will pay at the Worthing station. The people in this part of the country do a great job of producing livestock, and they are basically suggesting that they go somewhere else with their cattle. If not, they are going to ding you. They are suggesting these deep discounts because they feel it helps other producers in other parts of the country. However, producers are really competitive in our neck of the woods, and that doesn't seem very fair to me."
Rounds added, "Kim's discussion certainly piqued my interest. We may have to review whether or not organizations like this should have to answer to someone when they make these types of rules. However, with commodity prices down, there is a consistency here that is not good for farmers in South Dakota. When you have institutional challenges like this, it tells me that there's something wrong. I want to learn more before I can suggest action, but most certainly, every institution should have some sense of responsibility. After our meeting with Kim last week, my office is already preparing an inquiry for what the next steps should be with the CME."
For Ulmer, the solution is simple: "We need to regulate to change the CME gambling format back to an asset-based commodity future the way the industry already forward contracts millions of live and feeder cattle every year."
Ulmer encourages producers to take a minute to fill out his survey and continue to call elected officials' offices to bring this issue to the forefront. ❖
— Radke is a cattle rancher, freelance writer and agricultural speaker from Mitchell, S.D. She can be reached at email@example.com.