News

Forum gives endorsement for grinding meat futures

Jon Condon, 02/03/2012

AA Co managing director, David FarleyA gathering of prominent beef supply chain, export and finance industry stakeholders gave a strong endorsement for the principles behind a new price risk management tool for the global beef industry in Brisbane yesterday.

Forum convenor, Australian Agricultural Co managing director David Farley said he was encouraged by the positive support evident among stakeholders for the concept of a new globally traded futures product based on manufacturing beef.

Mr Farley told the forum that the time was right for such a marketing tool, with growing global demand for grinding beef (see today’s companion story on US exports) as a largely homogenous product that is subject to increased price volatility and has a large number of buyers and sellers across the world.

“As has been the case in the cotton and grains industries for many years, a futures contract would provide beef producers big and small with a tool to help manage their price risk and move from being price takers to becoming margin makers and in doing so create greater stability and attract more capital to the industry,” Mr Farley said.

Representatives of Chicago-based CME Group, the world’s leading and most diverse derivatives marketplace for agricultural commodities, acknowledged the positive feedback from the forum and signalled a level of commitment to pursuing and developing the potential new futures contract.

“This is a product that is very important to us,” CME’s managing director of product development, Tim Andriesen told the meeting.

“We’re very optimistic – we think this is probably the biggest opportunity, globally, that’s out there right now for new livestock sector contracts,” he said.

The CME Group has been holding discussions in other beef producing countries around the world and now wants to pull together a global ‘focus group’ including representatives from Australia to further develop and refine the elements of such a beef futures contract.

Mr Farley said while there were still a lot of detail to be thrashed-out by the CME Group over the next period – such as the actual product specification and delivery terms – he hoped the Brisbane forum would be a catalyst to drive further interest and involvement from across the Australian beef industry, the fast food sector and other end users, as well as the wider investor community.

He also welcomed support from Meat & Livestock Australia managing director Scott Hansen, who told the forum there was a necessity for more price risk management tools, given the size of the Australian beef industry and high volatility in prices over any given 12-month period.

"Ris is currently shared up and down the beef production chain, but such a contract could help pass some of that risk outside the chain itself," Mr Hansen said.  

He said that one of the key lessons from previous attempts was the importance of the engagement and commitment of commercial players in this potential new market tool.

“This is a critical and exciting initiative that will transform the way we manage price risk and do business in the global beef industry,” Mr Farley said.

  • More reports, analysis on the grinding meat futures concept on Beef Central early next week.
     

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