So far in 2024, the cattle market has remained relatively stable in price terms, that said movements of 20% or more in values within eight months this year represents continued volatility.
As Figure 1 depicts, the past four years of prices have been the most volatile since pricing records began via MLA’s National Livestock Reporting Service (NLRS).
While this level of volatility presents both opportunities and challenges, it is not conducive to a supply chain that is economically sustainable for the long term, particularly Australia’s beef supply chain. These wild price swings create instability. Volatility in commodity prices, particularly cattle prices across the entire supply chain (from producers, lot feeders, and processors to customers and consumers), places immense pressure on business viability and challenges the ability to service debt.
StoneX has recognised the importance of risk management in the cattle sector and the need for a legitimate risk management tool to address this price volatility. The StoneX Australian Cattle Swap aims to stabilise cattle market prices for both buyers and sellers, helping them better manage the volatility. The swap allows users to price forward their cattle via a paper contract up to 12 months in advance, protecting against unfavorable price movements—whether upward for buyers or downward for sellers.
The StoneX Cattle Swap is cash-settled, meaning that the physical animals themselves aren’t transacted as part of the trade. Producers and buyers can continue to market or source cattle wherever they choose to operate. Currently, the cattle swap is trading within a 10c/kg live weight (lwt) band over the first four months of the curve, with the most activity or liquidity found in the months from October to December 2024. For farmers selling the swap, this provides the ability to lock in a margin and return on their animals before a physical forward contract can be offered by buyers, ensuring that they secure a margin and price on a percentage of their total turnoff. Thus, allowing sellers to become more of price setters than price takers. This protects against the potential for cattle prices to fall between now and when those animals are physically sold.
As a point of comparison, the American cattle market has had a cash-settled swaps contract since the late 1990s and a futures market for cattle since 1971. This demonstrates the level of sophistication in risk management within the American cattle market and supply chain, especially compared to Australia’s near non-existent approach to risk management.
With continued price volatility in cattle markets, alongside challenging weather conditions, geopolitical tensions, trade uncertainties, and other factors, managing market and price risks is an essential component that Australia’s cattle market desperately needs to adopt.
The StoneX Forward Curve, dated Tuesday, September 10, indicates that the market is expecting further supply to put downward pressure on prices. The most liquidity in the forward months is from October through December 2024, with interest and bids/offers starting to emerge for 2025 as well.
Ripley Atkinson's experience in the red meat industry and current role at StoneX developing price risk management tools for Australia’s sheep and cattle sectors ensures he delivers unique, whole of supply chain insights and analysis across key factors such as prices, supply, production and the drivers of the sheep and cattle cycles.
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