Price risk management
Price volatility is unavoidable in the Australian cattle market. This is illustrated by the Eastern Young Cattle Indicator (EYCI) and Eastern States Trade Lamb Indicator (ESTLI), which have varied by 23% and 33%, respectively, within each calendar year since 2005.
Futures, forward contracts and other tools are used routinely in most agricultural commodities to control price and supply in advance. However, with a lack of futures markets, the only way in which Australian cattle and lamb producers can currently secure prices in advance is through forward contracts offered by processors and other buyers.
A liquid futures market would enable users to manage prices in advance. However, a futures market would also allow
- an increased range of forward contracting alternatives;
- greater availability of other ‘producer-friendly’ forward pricing tools; and
- improved price transparency
MLA’s role in this area is two-fold:
- Foster the commercially-led development of relevant forward pricing tools, through the provision of market information, expertise and logistical support.
- Enable producers, lot feeders and other key MLA stakeholders to understand and, where appropriate, use the range of forward pricing and other marketing tools and services available.
Australian Cattle Trade Rules
The Australian Cattle Trade Rules (ACTR) are standard terms and conditions for the contracting of cattle. They were developed by MLA, in conjunction with industry and are managed by MLA and Grain Trade Australia.
The ACTR provide:
- consistency in contract terms and conditions
- transparency in the contracting process
- clarity in business arrangements, thereby reducing risk of dispute
- In the unlikely event of default, a robust dispute resolution process
Download a copy of the Australian Cattle Trade Rules
Cattle Contracts Guide
The Cattle Contracts Guide provides a checklist for the sale of cattle under contract, including an explanation of the standard terms and conditions included in the ACTR. The guide also spells out the GTA dispute resolution process and helps buyers and sellers understand how to use the ACTR.
Download the Cattle Contracts Guide
For more information on MLA's prices and supply management program and activities contact Ben Thomas (MLA) on 02 9463 9283 or email firstname.lastname@example.org
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