Almost every month, the “Goldman Roll” takes its toll on the futures, often helping the “on deck” contract at the expense of the expiring contract. Last week, it was a big discussion point for analysts and market watchers.
For instance, Troy Vetterkind of Vetterkind Cattle Brokerage said cattle feeders were forced to accept lower money for their fed cattle last week because of the “fund roll of December longs forward into Feb/April. Funds have done 38,200 Dec/Feb live cattle spreads the last two days with December open interest declining 7,678 contracts during the period.”
He additionally speculated early last week that the Goldman Roll will limit the December contract’s rallying potential. By mid-week, after the December contract had lost almost $5 since the prior-Friday close, Cassie Fish of the Beef Report described the contract as being “pummeled by the roll all week.”
But what is the “Goldman Roll,” and how does it affect cattle markets?
The “Goldman Roll” is financial slang for the Goldman Sachs Commodity Index’s (GSCI’s) pattern of rolling forward its commodity futures holdings. From the fifth to the ninth business day of a month preceding an expiring contract month, Goldman Sachs will close 20 percent of its contract volume in a particular commodity and open it in the next, longer-term contract.
Since we are currently in November—the month preceding the expiration of the December contract—the Goldman Roll began last Tuesday, Nov. 7 and will end Nov. 13. The GSCI will shift its holdings in the December live cattle futures into February contracts. The most obvious impact of the Goldman Roll is changing volumes.
In its own explanation, Goldman Sachs described the roll in terms of baskets.
“The simplest way to think of the process is as rolling from one basket of nearby futures (the first nearby basket) to a basket of futures contracts that are further from expiration (the second nearby basket),” the group explained on its website.
“The portfolio is shifted from the first to the second nearby baskets at a rate of 20 percent per day for the five days of the roll period.” — WLJ
