Cattle Industry Setting the Standard for Forward Trading

AUSTRALIA - For many cattle producers managing risk through forward contracts can be a complex and confusing process, but that is all set to change with the official release of standard trade rules for the forward sale of cattle, reports Meat and Livestock Australia (MLA).

5 December 2007

3 minute read

Oceania

The standard forward contract trade rules are voluntary and aimed at creating transparency and consistency within the forward contracting process and simplifying the dispute resolution process.

Peter Weeks, Meat & Livestock Australia’s Manager of Market Information & Analysis, said the new trade rules should attract more cattle producers to forward contracting and help establish risk management as a core part of the way the cattle industry does business.

“Both cattle buyers and sellers need a means to minimise their exposure to adverse price and supply movements, given the inherent uncertainties and volatility within Australian cattle markets, and forward contracting does this,” Mr Weeks said.

“The establishment of a set of standard trade rules will give confidence to participants in forward contracting, creating a dynamic and diverse forward contracting market. It will also bring the Australian cattle industry in line with many other agricultural industries and with competing cattle industries in North and South America.”

The forward contract trade rules and other supporting materials will be administered by the independent National Agricultural Commodities Marketing Association (NACMA), who are experts in the field of agricultural commodity trade rules, standards and contracts. NACMA has over 15 years of experience from servicing the grains industry in a similar capacity.

NACMA will also be providing an efficient and robust dispute resolution services for the trade rules, overseeing the establishment of a peer-based mediation and arbitration process - a system that has worked effectively in the grains industry.

Accompanying the release of the industry standard trade rules are a number of supporting documents, including an explanatory guide to the trade rules to assist potential users gain a better understanding of the obligations surrounding forward contracting.

In addition, a pro forma contract referencing the trade rules has been released, ready for immediate industry use. The pro forma contract will be appropriate for store cattle and over-the-hooks forward contracting arrangements. The pro forma contract also gives those participants seeking to develop their own stylised contracts a template to use.

“The explanatory guide will assist participants to understand the technical components of forward trading and explain their obligations, while the pro forma document gives those parties wanting to immediately forward contract a document they can use with confidence,” Mr Weeks said.

"In time, as has been the case in other sectors, we anticipate participants will develop their own distinct contracts incorporating company specific requirements and logos. However, these will continue to reference the industry standard trade rules, ensuring a transparent and consistent forward contracting environment.”

The standard forward contract trade rules have been developed in consultation with cattle industry peak councils, and have the support of the Cattle Council of Australia, Australian Livestock & Property Agents Association and Australian Lot Feeders Association.