Markets

New Swaps tool executes first cattle trade

Beef Central, 11/10/2022

A NEW price risk management tool, which was launched to the Australian cattle industry earlier this year, has executed its first cattle swap with a major lot feeder involved in the trade.

StoneX launched its Australian Feeder Cattle Swap offering in February, which settles against the Australia northern feeder cattle index, published by Argus Media.

Charlie Mort

The counterparties to the trade were longstanding StoneX client Mort & Co, a Queensland-based lot feeder, and an East Coast-based cattle trader in Australia.

“StoneX and Argus have done well to create a feeder steer price index that is commercially relevant to the industry, which in turn gives us peace of mind to use a swap product against which it is settled,” said Charlie Mort, Executive Chairman of Mort & Co.

“The ability to hedge cattle prices out to 12 months and beyond creates a new set of opportunities when both input and output prices can be locked well in advance of the physical transaction.”

Since the launch of the Australian Feeder Cattle Swap in February 2022, StoneX has onboarded several clients to trade the swap, and says it expects over fifty new industry participants to become active over the next few months.

Tim Jude, StoneX’s Sydney-based livestock and commodities broker, said the Mort & Co deal was a significant milestone for the company.

“StoneX is proud to meet the demand of the Australian cattle market for an instrument to hedge their risks and manage their margins,” Mr Jude said.

“We’ve seen a significant decrease in the spread between the highest and lowest price paid in the market each week as a result of this swap and anticipate even greater efficiencies going forward.”

Tim Jude

The StoneX swap settles against a monthly average of the weekly Argus Australia northern feeder cattle index, launched last year. The index is based on transactions between farmers and feedlots within a 300km radius of Dalby on the Darling Downs.

The specificity of the Argus price methodology was directly developed with risk management tools in mind.

“I am delighted to see the first StoneX Australian northern feeder cattle swaps trading, enabling market participants to hedge risk and manage margins in these increasingly turbulent times,” said Argus Media chairman and chief executive, Adrian Binks.

“We are pleased to provide the settlement mechanism for this financial instrument, as we seek to bring greater price transparency to the Australian cattle markets.”

Understanding Swaps

So for those unfamiliar with risk management tools, what are Swaps?

Swaps are paper contracts where the risk is offset between two parties – with equal and opposite risks. In this example, StoneX stands in the middle, meaning the counter-party for both buyer and seller is StoneX. Neither side knows who the counter-party is. This eliminates any counter-party risk, and also maintains anonymity between the two parties – an important feature for the cattle and beef industry in Australia, where many players like to ‘hold their cards close to their chest.’

Margin facilities may also be provided by StoneX after the program’s launch, meaning participants would not have to tie-up working capital to trade.

Used in combination, the Argus Northern Feeder Cattle Delivered Pricing Index and the Australian Feeder Cattle Swap can help stakeholders manage risk, protect margins, monitor price spreads and track opportunities.

About StoneX 

StoneX (some readers may remember the company under its previous name INTL FCStone) is an international financial services network that specialises in hedging tools like forward contracts and swaps across a range of agricultural commodities. It connects companies, organisations, traders and investors to the global markets through a blend of digital platforms, end-to-end clearing and execution services.

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