THE company behind a new forward pricing mechanism for livestock trading says it is expecting the market to strengthen slightly later this year – as it works to embed itself in the Australian cattle industry.
United States-based financial company StoneX launched the Australian Feeder Cattle Swap in February last year with aim of providing a forward pricing tool for cattle markets. (More on cattle swaps below this article)
The company provides a forward pricing curve, which is a mid-point of bids, offers and indications it gets from users of the swap. Its livestock and commodities broker Tim Jude it was expecting a slight increase in prices towards the end of the year.
“Our forward pricing shows a bit more of a drop into next month, May averaged around the $3.50/kg mark and we expect that to get back up to around the $3.90 mark before the end of the year,” Mr Jude said.
“That is only a 10pc increase from where the market is currently, so it is nothing too extreme. We still think there is some nervousness in the market based on where the season currently is and the El Nino on the forecast.”
While the season was having an impact on the cattle market, Mr Jude said an increase in Australian processor capacity and tightening supply in global meat markets was likely to stabilise prices.
“Throughout the rest of this year, I think there will be a slow build of processor capacity in Australia,” he said.
“There is this dynamic in the US where their beef production is falling and is likely to fall further – that will lead to greater demand for Australian beef and make it easier for Australia to gain market access into some of those Asian markets where we have lost some ground in recent years.
“I think the price has come down to the point where most sectors of the supply chain can make a margin and there is enough reason to believe prices will come up slightly.”
Working towards having enough liquidity
The success of StoneX in Australia hinges on liquidity in its market, for which the company has set a series of goals. Mr Jude said the next goal was for 5000 to 10,000 head of cattle going through the swap per week by the end of the year.
“Liquidity is definitely not at that point yet, but we have several larger players in the industry starting to use it through trial trades or pilot projects,” he said.
“As that all plays out, we hope they start using it to a larger extent and hopefully builds the liquidity we need.”
Lotfeeders have been some of the most enthusiastic about the swaps, with Mort & Co being part of the first trade and plenty of talk about the StoneX market in forums and conferences recently.
Mr Jude said some other parts of the supply chain were starting to sign on.
“We have a couple of the larger cattle companies involved and some of the processors showing interest,” he said.
“These things take time though, especially with the larger companies which there are more sets of hands and more approvals needed.”
More articles on cattle swaps
- New swaps tool executes first trade
- Many opportunities presented by cattle swaps, conference hears
- New swaps price risk management tool launches, to enthusiastic response