StoneX Market Commentary – Thursday 29th February

KEY POINTS

• The StoneX Australian Cattle Swap intends to support the beef industries supply chain in managing price and market risk, particularly producers.
• The swap aims to lock in future margins for sale cattle to protect businesses from price changes in the market before they happen.
• To learn more, read the document at the bottom of this newsletter or call Ripley Atkinson on 0427 796 984

RISK MANAGEMENT 

• In the Australian cattle industry at its current stage, there are not many tools to manage price and market risk.
• The StoneX Feeder Cattle Swap has a role to play as a legitimate risk management tool available to the beef industry.
• This swap is a financial derivative product, intended for utilisation within the beef supply chain to assist users in managing market risk and to protect margin in trades through the buying and selling of cattle.
• The United States have been using similar products for more than 20 years, everyday producers of all shapes and sizes are utilising these tools to manage market risk and price changes, critically benefitting their business and protecting potential future income.

WHAT DOES THIS MEAN

• Risk management via cattle swaps is a strategic process, being committed to attempting to manage price and market risk is critical and it will help deliver a more favourable long term performance of your business.
• The basic nature of the product is to attempt to protect your margin between the buy and sell price of cattle as a user of the derivative throughout the duration of the trade. Even if you breed the cattle rather than buy in as at trade stock, the same logic applies, you’re simply looking to lock in the margin of your sell price and protect future income.
• The cattle swap is priced on a monthly basis, at least 12 months in advance, meaning producers can lock in a margin on a 12 month rolling basis. The swap trades every month of the year!
• Think about a calf, once weaned, you can lock in the margin of the sale price of that animal at a minimum of 1 month in advance and as far forward as the market is prepared to price, meaning you can lock in a sale price as far forward as a trade can be made indefinitely

WHY IS THIS IMPORTANT

• This is important because Australian cattle producers must become more sophisticated in terms of risk management rather than accepting the spot market on the day they choose to sell stock which can be extremely volatile, unreliable and a poor way of managing price risk.
• The StoneX cattle swap is an effective tool for cattle producers to begin managing market volatility and risk so as to ensure they protect their potential future income in the aim of being more profitable.
• Australian cattle prices in the last 6 months have gone through their most volatile price period since records began, falling to decade lows in October 2023 and rising very quickly since then.
  • This kind of volatility demands attention, meaning that producers must begin thinking about risk management and protecting their potential future income from unfavourable market changes.
• The cattle swap is designed to support the beef industries supply chain from producers to feedlots to processors, exporters, wholesalers, hedge funds, speculators and consumers.

TO LEARN MORE

• The best way to learn more is read the attached explainer document in this newsletter and then call me on 0427 796 984!

Kind Regards,

Report by Ripley Atkinson  |   Australian Livestock & Commodities Manager
M: +61-427-796-984
www.stonex.com | ripley.atkinson@stonex.com
StoneX Financial Pty Ltd (ACN 141 774 727 | ABN 50 141 774 727)
Suite 28.01 | 264 George Street | Sydney | NSW | Australia

Revised Disclaimer for SFPL
StoneX Financial Pty Ltd (ACN 141 774 727 | ABN 50 141 774 727) (“SFPL”) is a member of the StoneX Group Inc., group of companies. The StoneX Group Inc., group of companies provides financial services worldwide through its subsidiaries, including physical commodities, securities, exchange-traded and over-the-counter derivatives, risk management, global payments and foreign exchange products in accordance with applicable law in the jurisdictions where services are provided. References to over-the-counter (“OTC”) products or swaps are made on behalf of StoneX Markets LLC. (“SXM”), a member of the National Futures Association (“NFA”) and provisionally registered with the U.S. Commodity Futures Trading Commission (“CFTC”) as a swap dealer. SXM’s products are designed only for individuals or firms who qualify under CFTC rules as an ‘Eligible Contract Participant’ (“ECP”) and who have been accepted as customers of SXM. StoneX Financial Inc. (“SFI”) is a member of FINRA/NFA/SIPC and registered with the MSRB. SFI is registered with the U.S. Securities and Exchange Commission (“SEC”) as a Broker-Dealer and with the CFTC as a Futures Commission Merchant and Commodity Trading Adviser. References to securities trading are made on behalf of the BD Division of SFI and are intended only for an audience of institutional clients as defined by FINRA Rule 4512(c). References to exchange-traded futures and options are made on behalf of the FCM Division of SFI. StoneX Financial Ltd (“SFL”) is registered in England and Wales, Company No. 5616586, authorized and regulated by the Financial Conduct Authority [FRN 446717]. StoneX Financial Pte. Ltd. (“SFP”) (Co. Reg. No 201130598R) holds a Capital Markets Services Licence regulated by the Monetary Authority of Singapore for Dealing in Exchange-Traded Derivatives Contracts, Over-the-Counter Derivatives Contracts, and Spot Foreign Exchange Contracts for the Purposes of Leveraged Foreign Exchange Trading. SFPL holds an Australian Financial Service License and is regulated by the Australian Securities and Investments Commission (AFSL: 345646). StoneX Financial (HK) Limited (CE No.: BCQ152) is regulated by the Hong Kong Securities and Futures Commission for Dealing in Futures Contracts. ‘StoneX’ is the trade name used by StoneX Group Inc. and all its associated entities and subsidiaries Trading swaps and over-the-counter derivatives, exchange-traded derivatives and options and securities involves substantial risk and is not suitable for all investors.