Queensland-based lot feeder Mort and Co have become one of the first clients to trade with the StoneX Australian Feeder Cattle Swap.
The US-based financial service company launched the swap in February based on a very narrow index, which makes it significantly different to previous live cattle futures contracts that have not been able to stand up.
It has been created on a Darling Downs delivered animal, 380 to 480 kilogram (liveweight), milk to two teeth, flat back with 51 per cent or less Bos indicus content.
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It works with the Argus Northern Feeder Cattle Delivered Pricing Index, launched about this time last year, which comes from a pool of up to 40 participants, with typically 25 transaction data points collected weekly, and is published every Thursday at close of business. The swaps are cash settled against the average of each Thursday in that month.
Mort and Company executive chairman Charlie Mort said StoneX and Argus had done well to create a feeder steer price index that was commercially relevant to the industry, which in turn gave their company peace of mind to use a swap product against which it is settled.
"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," Mr Mort said.
Since the launch of the Australian Feeder Cattle Swap in February 2022, StoneX has obtained interest from several clients to trade the swap, with more than 50 new industry participants to be included in the trading during the next few months.
Tim Jude, StoneX's Sydney-based livestock and commodities broker said the influx of new clients speaks to the overwhelming demand for additional risk hedging vehicles to address market volatility in the world's third-largest beef market.
"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.
"This swap is a significant milestone in bringing increased transparency and more efficient pricing to the cattle market.
"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."
He said contributions from a deep pool of sources across the supply chain ensure that the index reflects fair market value.
"The specificity of the Argus price methodology was directly developed with risk management tools in mind," he said.
Argus Media chairman and chief executive Adrian Binks said he was 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
"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."
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