Feedstuffs in Focus
Feedstuffs in Focus is a weekly look at the hot issues in the livestock, poultry, grain and feed industries. Join us as we talk with industry influencers, experts and leaders about trends and more. Feedstuffs in Focus is produced by the team at Feedstuffs.
Feedstuffs in Focus
Shell Egg Contract: Financial innovation for market volatility
Egg prices have been on a wild ride, with unprecedented volatility creating headaches for everyone from producers to restaurant chains. But what if there was a financial tool designed specifically to smooth out these price swings? That's exactly what StoneX has developed with their new shell egg contract.
As Ryan Turner of StoneX explains, this innovative risk management solution emerges just as the company celebrates its centennial anniversary—a meaningful full-circle moment considering StoneX began as an egg brokerage in Chicago back in 1924. From those humble beginnings, they've grown into a global financial services powerhouse while maintaining deep agricultural roots.
What makes this contract particularly valuable is its customer-driven origin. Turner emphasizes that the best financial products always emerge from client needs.
While external factors like recent tariff announcements will impact commodity markets broadly, shell eggs remain somewhat insulated due to their predominantly domestic consumption. Nevertheless, having effective risk management tools becomes even more crucial during periods of geopolitical uncertainty. As Turner notes, once these financial instruments gain traction during volatile periods, they typically become standard industry tools for decades to follow.
The industry's participation is vital for this contract to develop its full potential, Turner notes.
Volatility in shell egg pricing has become a real issue for sellers and buyers of eggs. In an effort to help the industry better manage this volatility, a new shell egg contract has been launched. Welcome to Feedstuffs in Focus, our podcast taking a look at the big issues affecting the livestock, poultry, grain and animal feed industries. I'm your host, sarah Muirhead. Joining us today to talk about a new financial tool for the shell egg sector is Ryan Turner of StoneX. Ryan, let's start by looking back. The launch of a shell egg contract kind of underscores Stone X's origins in the egg industry. Talk with us about that evolution of Stone X from when it first started I believe it was back in 1924 until now. And you're coming out with this shell egg contract. Kind of frame that up for us, if you would.
Speaker 2:Yeah, so Stone X has always had a very deep root in agriculture, and you know we just celebrated our 100-year anniversary last year and that did start with Saul Stone kind of the namesake as an egg broker in Chicago, and from those humble beginnings, chicago and from those humble beginnings, we're now a global financial services company with offices in almost every country in the world and still focused, though, on delivering what we feel like are solutions that can help our clients manage their price risk, and that is one of the things that started this Shell Egg contract, or the concept behind it was clients coming to us or people in the industry coming to us looking for a solution. Stonex's best products are always products that a customer is seeking and looking for. It's never products that we dream up and go out to the public with. It's always clients come to us seeking help, seeking solutions, and then we develop those, and that's where this egg contract really came from.
Speaker 1:So you kind of take the tools that you have in place in other areas of agriculture and applied them here in the Shell Ag contract, really kind of combining your expertise then in your commodity risk management and other market tools and bringing this to be. I mean, how much of a process is that to create something like this in a market right now that is just ever-changing?
Speaker 2:Yeah, so you're right, stonex has a lot of different products in the commercial agricultural space. This actually fits really well with our food service offering. We've got a lot of products, be it custom meat, swaps on pork, on beef cheese, dairy products, energy products, diesel fuel, etc. And so this is just another tool in the toolbox, so to speak. That kind of fits in with those companies and you know so.
Speaker 2:Obviously the egg market has been extremely volatile, unprecedented, in the last, you know, six to 12 months. And StoneX has the ability to via our swap dealer. So we are a registered swap dealer. So through the swap dealer we have the ability to build very custom and very unique products, and that is where the shell egg contract comes from. So we take an index in this instance. You know I'm getting into some of the details, but in this instance we're going to use an index printed by Expana or the old earner berry. We take an index that is widely used, widely respected, and we use that as the settlement reference for the swap. And then really it's just buyers and sellers, market participants. Stonex will be the clearinghouse through the swap dealer.
Speaker 1:So then, when should a producer, a buyer, a food industry participant, when should they look to get involved in something like this? Is there like a price point? Is there when volatility is a certain level? Or when do you recommend they really kind of take a serious look at the shell egg contract?
Speaker 2:Yeah. So I think it's the same with any risk management product, be it pork, bellies for bacon or hams or whatever the product might be. It's to me, if you're a consumer let's say you're a food service company, restaurant company it's always about how do I manage margins, so it's not necessarily any specific price point margins. So it's not necessarily any specific price point. It's okay, my menu price is set at this or my shelf price is set at this and now we can look to target that and lock those types of prices in further out onto the curve or further out into time so we can offer these swaps out 12 months into the future. They're monthly, so they're monthly settled.
Speaker 2:And it's the same thing with egg layers or with producers, right? They're looking to manage profit margins If they can sell eggs out forward, buy corn and meal or whatever their inputs are, and lock in a profit margin. Those are the triggers for when to look at it. This is a new product. It's not like corn futures where you're trading in and out of and very liquid product, but it's there. It's able to be used. We have market participants getting quotes and looking at the product today and I would just encourage anyone buy side or sell side to reach out to us, and the more participants we have, the better the market will be.
Speaker 1:So what happens when we have, like this week's, announcement on the tariffs? Does that then come in and have any kind of influence on a contract like this? I mean, it certainly influences the markets.
Speaker 2:Yeah, I mean, I think broadly speaking, it would influence virtually every commodity and we've seen that, right, you know, over the even over the last month and a half to two months, in anticipation of our tariffs on or tariffs off what products, what countries, what rates. You know we got a little bit more clarity on some of that yesterday, but yeah, undoubtedly the answer would be yes. I mean, these types of geopolitical issues will impact all commodity pricing, including shell eggs, will impact all commodity pricing, including shell eggs. Now I will say some of those products may be a little more sheltered because they're more domestic, you know, eggs being one of those. So, but anything we do import or export would obviously be the impacted.
Speaker 1:Yeah, that's true. Eggs aren't don't quite have that export market like some of the other commodities. I know they've been working on it, but maybe right now that's a good thing that they don't have that.
Speaker 2:Yeah, a lot of domestic consumption, that's right.
Speaker 1:So when you see these kinds of tools, when you put these tools in place and you talked about how a lot of times it's from the industry asking for these things and probably it's when there is an issue with volatility or some kind of demand for a tool like this Does that make it a long term tool, or do you see this being something only when we're looking at a real volatile market for eggs that this tool will be useful?
Speaker 2:Yeah. So I think it's definitely a long-term product offering and I think it's a long-term tool that both consumers and producers need to have in the toolbox. These types of one-off events or anomaly type events, like we just went through, are a lot of times the catalyst for bringing risk management tools to the forefront, and then they get used for long periods of time. A great example would be some of the custom meat swaps, so I'll use pork bellies as an example. Covid was a catalyst to drive new risk management tools to the forefront, and now they're more used today than they were even then. So I think the catalyst brings the tool to the forefront and then it's a long-term solution that the industry can utilize to help manage risk.
Speaker 1:What else do you want folks to know about this new contract or these risk tools in general?
Speaker 2:Probably the key here is again. I go back to market participation. A lot of times with new products, people want to sand on the sidelines and wait to see how others get involved or see how the contract develops. Well, if everybody does that, the contract never develops, and so I would encourage the industry to come forward and be a participant, be a market participant, talk to us. We're willing to work with you, set up risk management plans for you, all of those things, and that will help everyone in the industry develop this tool and be able to utilize it.
Speaker 1:So then, the best place to go to get some more information.
Speaker 2:Yeah, well, you can email me directly. It's just ryanturner at stonexcom. You can go to our website, stonexcom. There's a landing page there for more information specifically on the shell egg contract, and those would probably be the two best ways.
Speaker 1:Very good. Well, thank you so much for joining us here today.
Speaker 2:Yeah, thank you for having me.
Speaker 1:I appreciate it. I'm Sarah Muirhead and you've been listening to Feedstuffs In Focus. If you would like to hear more conversations about some of the big issues affecting the livestock, poultry, grain and animal feed industries, subscribe to this podcast on your favorite podcast channel. Until next time, have a great day and thank you for listening.