KANSAS CITY, Mo. – When it comes to buying and selling boxed beef in this seemingly always volatile market, a new business has recently emerged to help both buyers and sellers of boxed beef reduce risks: San Francisco-based ForwardTrade. Its recent launch couldn’t have come at a better time — it is a time of increasing uncertainty in the beef industry as shrinking cattle herds are putting increased pressure on beef processors, while record-high beef prices and declining consumption are putting pressure on retailers and foodservice operators as they try to profitably manage protein categories.
Here’s how it works:
1. ForwardTrade provides an offer price per lb. by multiplying its ratio forecast by the current live cattle futures price for the closest contract to the delivery date.
2. Using the ForwardTrade platform, the seller creates an offer for delivery of a specific number of loads of a boxed beef cut at a location and price in a specific forward month.
3. Buyers can purchase the offer at the offer price or counter with the seller online. Buyers can also initiate deals.
4. A transaction is booked and both parties receive confirmations. The buyer or seller can then execute a hedge with the same underlying live cattle futures contract.
Last Thursday, I had the pleasure of speaking with Mike Neal, industry entrepreneur and ForwardTrade CEO, about his newest business. Neal is no stranger to the meat industry. He is also the founder of both DemandTec and SignalDemand, the latter of which calls itself the industry leader in online-commerce for food and physical commodities.
In ForwardTrade’s case, it is forecasting the price of 250 different boxed-beef cuts, as well as some trim and grinds, to help buyers and sellers come to terms on price for out front deals. “We’re telling them what the likely daily price will be on, say, a lip-on rib eye 20 weeks into the future to help them to avoid the ‘bid and quibble’ they have historically gone through — we’re helping them come to terms much more quickly on price,” Neal explains.
Using ForwardTrade is a way to build a forward position that might be more difficult without this technology, Neal says. “We help sellers get instant access to a wide variety of buyers, and help buyers get instant access to many sellers… and we give both sides comfort that there’s an objective, third-party forecast of prevailing prices to help them come to terms,” Neal says. “It’s basically a safe and efficient new way to manage risk. It allows both sides to easily build forward positions, which represent a hedge against market price movements.”
When asked to expand on how ForwardTrade works, Neal explains, “Imagine a grid where each column represents one week…going out 52 weeks into the future, and each row represents one of the roughly 250 beef products in the system” Neal says. “We’re populating that grid every day with our forecasted prevailing price for each of those items…so for each week, we are listing 250 prices, one per product. And every day we update all of them.”
This allows buyers and sellers to do transactions in those cells. “Imagine if you’re a seller,” he continues. “You’ll look at the price for a given item in a given week and decide if you want to put loads up for sale at that price. If you do, you enter how many loads you’re going to make available in that particular week. And a buyer looks at this grid and sees all the loads for sellers that they have approved…[if they don’t want to buy from a given seller, that seller’s product wouldn’t show up]…and they may click that they will buy a certain number of loads.”
Buyers can also place a bid. “They may say, ‘I would like to buy three loads of chuck rolls, but at a slightly lower price’ — they just bid it,” Neal says. “That’s the process. Buyers and sellers come to terms very quickly, avoiding the historical process of a series of phone calls.”
It is a very efficient process. “It wasn’t designed to save labor; it was designed to provide objective pricing out front to help buyers and sellers build those positions,” Neal says. “But you do have a couple of ancillary benefits. One is that it’s quick and efficient. Two, it’s a price-discovery mechanism; the system provides a rich data set telling buyers and sellers where the forward market is heading across the carcass.
ForwardTrade combines a state-of-the-art marketplace and industry-leading price analytics with simple, easy hedging. It enables buyers and sellers to reduce out-front risk; protect against market volatility; lock in forward volume; guarantee forward supply; improve pricing accuracy; lower the cost of doing business; plus improve their competitive advantage.
Although new, some powerhouse companies have already committed to use ForwardTrade. On the sell side, Cargill, JBS USA plus some smaller companies were quick to sign up. On the buy side, a few dozen buyers are on the system. “We’re getting the critical mass we needed, which is, of course, very important for an exchange like this,” Neal points out.
How much does it cost to use ForwardTrade? It costs 63 basis points of the transaction value, which is roughly one-half of 1 percent, Neal says.
Regarding the future, ForwardTrade plans to cover other proteins down the road plus expand globally. “We believe it is important to stay focused so we’re going to make sure we’re successful in beef before we approach pork and poultry, which are the next two proteins on our list,” Neal says.
“This is going to be a global operation,” he adds, “and we are going to be working with offshore buyers and sellers at some point.”
Enhance your industry IQ Sign up for our free newsletters to stay informed on each day’s news and trends |
Subscribe |