The CME Group has announced changes to live cattle futures aimed at improving the transparency of cash markets.

The changes include a seasonal price discount at the Worthing, S.D., delivery location, revised grading and quality specifications and the delayed listing of additional contracts.

The changes are a result of CME’s internal analyses, an independent study by Informa Economics and feedback from the cattle industry, said Dave Lehman, CME managing director of commodity research and product development.

A seasonal discount of $1.50 per hundredweight will be applied to live cattle offered at Worthing for the October contract only. The discount will ensure the futures contract delivery terms are reflective of the underlying cash market and ensure Commodities Futures Trading Commission compliance, Lehman said.

“CFTC rules require exchanges specify delivery differentials reflective of commonly observed cash-price differentials,” he said.

CME’s own analysis, confirmed by the Informa study, shows cash prices in the Iowa-Minnesota region are significantly lower than CME’s other delivery territories in the fall months. The October discount will mirror the underlying cash market, he said.

Cattle production has grown faster than processing capacity in the region, and more cattle move to markets in the fall. Drought in the Southern Plains and availability of corn and distillers grains moved production north, he said.

The number of slaughter cattle in the fall exceeds processing capacity, and lower prices in the cash market take into consideration the additional freight cost to ship cattle to slaughter, he said.

Several state cattlemen’s associations have raised concerns that the discount would negatively affect cash-negotiated trade in the Upper Midwest, penalizing producers in the region.

Lehman said he thinks the discount is misunderstood.

“All it’s intended to do is reflect price levels in the cash market. It will not affect that cash price,” which is determined by supply and demand factors, he said.

And it will only impact a small percentage of the market. CME contract deliveries in October 2015 represented about 4,500 to 4,700 head, compared with about 300,000 head of total marketings in the region, he said.

CME’s analysis, as well as the Informa study, found no statistical difference in prices at CME’s 13 cattle delivery points except that they were higher in October in 12 locations relative to the Iowa-Minnesota region, the only price series available in the Worthing area, he said.

“The data clearly told us and confirmed our own analysis this area should be discounted in October,” he said.

The new discount will be effective with the August 2017 contract, which will be listed for trading on Aug. 22, 2016.

CME is also updating its contract quality grade for both live and carcass deliveries to 60 percent choice and 40 percent select from 55 percent and 45 percent, respectively. The change is based on increasing quality grades across major fed-cattle regions and industry feedback.

It will also delay listing any contract months beyond October 2017 as it continues to work with industry on how cash markets can be made more robust and transparent, Lehman said.