Call for beef agree­ments

Lock-in mar­gins to help pro­duc­ers for­ward plan

The Northern Star - Northern New South Wales Rural Weekly - - News -

FOR­WARD mar­ket­ing agree­ments are vir­tu­ally non-ex­is­tent at the beef cat­tle pro­ducer level, and it is time for a change.

Rabobank an­a­lyst An­gus Gi­d­ley-Baird said in a re­cent re­port that while for­ward mar­ket­ing wasn’t a ‘sil­ver bul­let’, the need to man­age volatil­ity had in­creased.

“Not only do for­ward agree­ments al­low pro­duc­ers to se­cure a fu­ture price, thereby giv­ing them more cer­tainty, they can also help pro­ces­sors and oth­ers in the sup­ply chain man­age sup­ply vari­a­tions,” he said.

“And it is even more crit­i­cal this year, with lo­cal beef pro­duc­ers mak­ing in­vest­ment de­ci­sions around whether to re­build herds in a high-priced mar­ket.

“In this environmen­t, the use of for­ward mar­ket­ing agree­ments could give pro­duc­ers some se­cu­rity around fu­ture prices and vol­umes, to help pro­vide a more in­formed in­vest­ment de­ci­sion when pur­chas­ing cat­tle.”

In­creased abil­ity and use of ob­jec­tive mea­sure­ments have made for­ward con­tract­ing a more fea­si­ble op­tion in beef cat­tle, Mr Gi­d­ley-Baird’s re­port said.

Par­ties right along the sup­ply chain should be work­ing to make such agree­ments com­mon­place in the in­dus­try.

For pro­duc­ers, this meant a change in the approach to mar­ket­ing cat­tle, as well as a clear knowl­edge of pro­duc­tion costs.

“Knowl­edge about costs al­lows prices to be ne­go­ti­ated around sus­tain­able mar­gins, rather than us­ing them to try and beat a mar­ket driven by sup­ply de­mand,” the re­port said.

For in­dus­try, the rel­a­tive lack of for­ward con­tracts now means they should con­sider de­vel­op­ing in­dus­try stan­dards, Mr Gi­d­ley-Baird said.

“Fur­ther­more, across the whole sup­ply chain, there is a need to show lead­er­ship and pro­mote a more col­lab­o­ra­tive approach that can help min­imise volatil­ity, de­velop spe­cific prod­ucts, and pro­vide se­cu­rity of sup­ply,” the re­port states.

Agri­cul­tural risk prod­uct provider Rie­mann be­gan of­fer­ing for­ward con­tracts against cat­tle prices in Septem­ber last year, and in Oc­to­ber 120,000kg of beef was traded through the sys­tem.

Th­ese are cash-set­tled for­ward con­tracts set­tled against the Eastern Young Cat­tle In­di­ca­tor, with ma­tu­rity dates out to two years.

How­ever, there has been lit­tle util­i­sa­tion of the sys­tem since, and other for­ward mar­ket­ing op­tions avail­able around the im­ported 90CL price, and the beef cut-out price, have not been traded on at all.

Me­cardo live­stock mar­ket an­a­lyst Matt Dal­gleish said for­ward con­tract agree­ments such as Rie­mann’s could be a real ben­e­fit to ev­ery­one in the in­dus­try, but they just weren’t at­tract­ing the in­ter­est.

“It would al­low pro­duc­ers to be able to lock in their mar­gins much more ef­fec­tively and make bet­ter trad­ing de­ci­sions if they had ac­cess to that type of trans­par­ent op­tion, giv­ing them more mar­ket price in­for­ma­tion to com­pare what they are get­ting of­fered else­where,” he said.

And there would also be ben­e­fits for pro­ces­sors be­ing able to man­age price risk, Mr Dal­gleish said, as well as se­cure sup­ply fur­ther in ad­vance.

“In a liq­uid for­ward mar­ket they could do for­ward de­liv­ered con­tracts with reg­u­lar pro­duc­ers out as far as a year in ad­vance at a cer­tain rate and se­cure sup­ply long term, but then go into for­ward mar­ket and trade out of that price risk if they needed to.”

It also al­lows pro­duc­ers, and pro­ces­sors, to have ac­cess to the whole mar­ket­place, re­gard­less of lo­ca­tion, as be­ing cash set­tled the stock can be de­liv­ered lo­cally but the mar­ket price risk can be off­set with a par­tic­i­pant any­where.

Mr Dal­gleish said Rie­mann’s wool con­tract prod­uct was rel­a­tively well sup­ported, with trades go­ing through on a reg­u­lar ba­sis.

But any live­stock equiv­a­lent was miss­ing big busi­ness in­volve­ment.

“The dif­fer­ence is be­cause the par­tic­i­pants in wool mar­ket are trad­ing phys­i­cal wool with each other all the time and al­ready have re­la­tion­ships with each other, they are happy to ex­tend credit and counter party risk is not as big of a con­cern,” he said.


GET­TING AHEAD: Rabobank an­a­lyst An­gus Gi­d­ley-Baird is call­ing for more cer­tainty for beef pro­duc­ers.

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