In the late 1990s a study was carried out in Kerala, India to observe the impact of price discovery within the fishing sector. Despite being an essential sector of the economy in the region, employing over 1million people and fish a staple of the local diet; gross inefficiencies in the market were observed. The study, carried out by Robert Jenson (Yale) (link), found that this occurred due to a lack of price discovery. While the fishermen were at sea catching the fish, they had no means to discover prices at the numerous fish markets ashore. This meant the fishermen simply took their catch to the nearest markets, where due to transportation costs & storage limitations, the fish were sold with varying degrees of success. This led to an imbalance of supply and demand across the coastline and vast variations in prices from market to market. The study found that on average 5-8% of a catch was wasted. Fishermen had no guarantee of selling their catch and buyers at the markets had no certainty of supply. One example showed that 11 fishermen threw away their catch at Badagara beach on a day where within a 15km range of the beach, 27 buyers were without fish.
In 1997, mobile phone networks were being introduced to parts of Kerala and the fishermen began investing in mobile phones. The fishermen began using the mobile phones to discover which markets needed fish along the coastline and the prices for the day. The results showed price variation, measured in the mean coefficient of variation of price across markets (the standard deviation divided by the mean) declined from 60% –70% to 15%. Waste was reduced from 5-8% of a daily catch before mobile phones to zero waste after. The price results are displayed below.
Agricultural commodity markets are for the most part more sophisticated than the local fishing markets of Kerala, but many similarities in price discovery still exist. Price discovery remains a critical part of day-to-day trading, enabling transparency in previously opaque markets. Stable partners with over 100 commodity reference price providers across the global markets, each of which utilise their local market contacts and expertise to help facilitate market price discovery. These partnerships are made up of a combination of entities in the public and private sector, including price reporting agencies, local auction houses, government bodies, regional exchanges and tech companies working in price discovery.
Price discovery can occur due to a policy shift in markets. These policy shifts can significantly benefit Stable in our quest for recognised and reliable price references. In the US markets, the 1999 livestock mandatory reporting act (link) dictates that all slaughterhouses processing an average of 125,000 cattle per year must report their daily prices. The USDA reports 300 daily reports under the mandatory livestock reporting act, which has enabled transparency in the markets. One of these reports is the daily boxed beef report (link), which the USDA estimates represents 93% of the boxed beef market (link), enabling Stable to offer prices upon each of these beef cuts. The mandatory reporting of prices for wholesale pork prices came into law in 2013 and mandates that all slaughterhouses processing over 100,000 head per annum must report their sales prices for Pork cuts. The CME has recently launched a futures price upon the cut out value of pork cuts (link). The US livestock and meat price reporting, due to mandate, is some of the most reliable data in the global markets. Further reading on the history (link). Similar mandates exist in the US for dairy, in 2000 the National Dairy product sales report was launched and was revised to its current guise in 2012 (link).
The mandatory collection of prices extends to Europe. In the UK, the AHDB (link) reports the Corn returns prices, which have been reported on a mandatory basis since the 1882 Corn Returns Act (link). All buyers of over 1000 MT grain per annum in the UK must report their prices to the levy board. The 1882 policy was reaffirmed in the 2008 AHDB Order (link), which reiterates the obligation of buyers of grain in the UK to report prices. France Agrimer collects Cattle prices on a mandatory basis for all cattle purchases in France. Any of the 67 slaughterhouses slaughtering over 5000 head per annum is obliged to report prices (link). This forms part of the wider European Union market observatory (link), which mandates that prices are reported by EU nation states to the EU commission across the milk, meat, cereals, sugar, wine and Fruit & vegetable markets.
Alongside mandatory price reporting, Stable works alongside the local European markets. Stable works with the reliable and widely referenced wholesale prices in Hamburg (link), Barcelona (Mercat Carni Barcelona), Paris (Rungis) and the UK (DEFRA) in the meat cuts and fruit and vegetable markets. The Exchanges in Milan (link) and Bologna (link) provide the benchmark European physical grains prices for niche grains such as Durum wheat, while the Andalusian producer organisation, Poolred (link) provide Stable with the global olive oil price benchmarks.
Agricultural commodity price reporting has seen significant recent investment. In the past 18 months, Euromoney (Fastmarkets) have moved into the agricultural commodity market price reporting space with the acquisitions of Agricensus (link) and The Jacobsen (link) to give them coverage of US, European and Black Sea grains. This follows Argus acquiring French grains price reporting agency Agritel (link) & Mercaris along with S&P Global Platts acquiring Live Rice Index (link), the leading price reporting agency for global rice prices. Mintec also started reporting proprietary nuts prices (link), the first of its kind. Stable works alongside these PRAs, in addition to established companies such as Urner Barry (link) who have been reporting prices in the US eggs and Poultry industry since the late 19th century. In addition to these price reporting agencies utilising tried and tested methods, Stable also works alongside tech companies such as Glowlit (link) who utilise data driven market monitoring. Glowlit deploys a tech solution to price reporting, using an algorithmic assessment of transaction prices reported by industry participants to report the average price of the day within the vitamin markets. The Vesper (link) is another example of Stable working with new technology companies to discover prices in markets. The Vesper is a platform based tech startup providing benchmark prices in the dairy sector in Europe. Stable is constantly searching for the most innovative and most robust price reporting techniques to help uncover the most opaque markets.
Evaluating the price collection methodology for each index and identifying potential risks is essential. Commodity price reporting agencies normally follow the principles set out within the Oil markets, which are outlined in the IOSCO principles (link). These guidelines dictate price reporting standards to ensure the most robust prices are reported in the markets. Stable has established a rigorous and uniform process for assessing each commodity reference price, which calculates the quality of the index using a weighted scoring system, called the Stable Grading System. The system categorises the Indexes into 3 tiers, in order of quality.
The process of tiering an index is a collaborative process with the Index provider. Stable uses index providers made up of government bodies, exchanges, auctions, and private price reporting agencies. Stable has formed relationships with each index provider and works with them closely to establish clarity over the methodology. Many of Stable’s providers publish multiple price indexes – so Stable contacts the specific people responsible for each index. Stable has created a questionnaire which is filled in collaboratively with each index provider to gather the information for the grading system. Stable arranges follow up conversations with the index provider to clarify any ambiguity in the questionnaires. The questionnaire is made up of 19 questions which assess the quality of the index in four areas: methodology, data integrity, data availability and index robustness. These evaluations have been put together applying the IOSCO Principles for price reporting as a benchmark.
