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. 

Episode Transcript

Speaker 1 (00:07):
Volatility in shell egg pricing has become a real
issue for sellers and buyers ofeggs.
In an effort to help theindustry better manage this
volatility, a new shell eggcontract has been launched.
Welcome to Feedstuffs in Focus,our podcast taking a look at
the big issues affecting thelivestock, poultry, grain and
animal feed industries.

(00:27):
I'm your host, sarah Muirhead.
Joining us today to talk abouta new financial tool for the
shell egg sector is Ryan Turnerof StoneX.
Ryan, let's start by lookingback.
The launch of a shell eggcontract kind of underscores
Stone X's origins in the eggindustry.
Talk with us about thatevolution of Stone X from when

(00:51):
it first started I believe itwas back in 1924 until now.
And you're coming out with thisshell egg contract.
Kind of frame that up for us,if you would.

Speaker 2 (01:01):
Yeah, so Stone X has always had a very deep root in
agriculture, and you know wejust celebrated our 100-year
anniversary last year and thatdid start with Saul Stone kind
of the namesake as an egg brokerin Chicago, and from those

(01:22):
humble beginnings, chicago andfrom those humble beginnings,
we're now a global financialservices company with offices in
almost every country in theworld and still focused, though,
on delivering what we feel likeare solutions that can help our
clients manage their price risk, and that is one of the things

(01:47):
that started this Shell Eggcontract, or the concept behind
it was clients coming to us orpeople in the industry coming to
us looking for a solution.
Stonex's best products arealways products that a customer
is seeking and looking for.
It's never products that wedream up and go out to the

(02:11):
public with.
It's always clients come to usseeking help, seeking solutions,
and then we develop those, andthat's where this egg contract
really came from.

Speaker 1 (02:22):
So you kind of take the tools that you have in place
in other areas of agricultureand applied them here in the
Shell Ag contract, really kindof combining your expertise then
in your commodity riskmanagement and other market
tools and bringing this to be.
I mean, how much of a processis that to create something like
this in a market right now thatis just ever-changing?

Speaker 2 (02:46):
Yeah, so you're right , stonex has a lot of different
products in the commercialagricultural space.
This actually fits really wellwith our food service offering.
We've got a lot of products, beit custom meat, swaps on pork,
on beef cheese, dairy products,energy products, diesel fuel,

(03:11):
etc.
And so this is just anothertool in the toolbox, so to speak
.
That kind of fits in with thosecompanies and you know so.
Obviously the egg market hasbeen extremely volatile,
unprecedented, in the last, youknow, six to 12 months.
And StoneX has the ability tovia our swap dealer.

(03:33):
So we are a registered swapdealer.
So through the swap dealer wehave 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 thisinstance.
You know I'm getting into someof the details, but in this

(03:53):
instance we're going to use anindex printed by Expana or the
old earner berry.
We take an index that is widelyused, widely respected, and we
use that as the settlementreference for the swap.
And then really it's justbuyers and sellers, market
participants.

(04:13):
Stonex will be theclearinghouse through the swap
dealer.

Speaker 1 (04:20):
So then, when should a producer, a buyer, a food
industry participant, whenshould they look to get involved
in something like this?
Is there like a price point?
Is there when volatility is acertain level?
Or when do you recommend theyreally kind of take a serious
look at the shell egg contract?

Speaker 2 (04:39):
Yeah.
So I think it's the same withany risk management product, be
it pork, bellies for bacon orhams or whatever the product
might be.
It's to me, if you're aconsumer let's say you're a food
service company, restaurantcompany it's always about how do
I manage margins, so it's notnecessarily any specific price

(05:03):
point margins.
So it's not necessarily anyspecific price point.
It's okay, my menu price is setat this or my shelf price is
set at this and now we can lookto target that and lock those
types of prices in further outonto the curve or further out
into time so we can offer theseswaps out 12 months into the
future.
They're monthly, so they'remonthly settled.

(05:27):
And it's the same thing with egglayers or with producers, right
?
They're looking to manageprofit margins If they can sell
eggs out forward, buy corn andmeal or whatever their inputs
are, and lock in a profit margin.
Those are the triggers for whento look at it.
This is a new product.

(05:49):
It's not like corn futureswhere you're trading in and out
of and very liquid product, butit's there.
It's able to be used.
We have market participantsgetting quotes and looking at
the product today and I wouldjust encourage anyone buy side

(06:11):
or sell side to reach out to us,and the more participants we
have, the better the market willbe.

Speaker 1 (06:20):
So what happens when we have, like this week's,
announcement on the tariffs?
Does that then come in and haveany kind of influence on a
contract like this?
I mean, it certainly influencesthe markets.

Speaker 2 (06:34):
Yeah, I mean, I think broadly speaking, it would
influence virtually everycommodity and we've seen that,
right, you know, over the evenover the last month and a half
to two months, in anticipationof our tariffs on or tariffs off
what products, what countries,what rates.
You know we got a little bitmore clarity on some of that
yesterday, but yeah, undoubtedlythe answer would be yes.

(06:55):
I mean, these types ofgeopolitical issues will impact
all commodity pricing, includingshell eggs, will impact all
commodity pricing, includingshell eggs.
Now I will say some of thoseproducts may be a little more
sheltered because they're moredomestic, you know, eggs being
one of those.
So, but anything we do importor export would obviously be the

(07:18):
impacted.

Speaker 1 (07:20):
Yeah, that's true.
Eggs aren't don't quite havethat export market like some of
the other commodities.
I know they've been working onit, but maybe right now that's a
good thing that they don't havethat.

Speaker 2 (07:30):
Yeah, a lot of domestic consumption, that's
right.

Speaker 1 (07:33):
So when you see these kinds of tools, when you put
these tools in place and youtalked about how a lot of times
it's from the industry askingfor these things and probably
it's when there is an issue withvolatility or some kind of
demand for a tool like this Doesthat make it a long term tool,
or do you see this beingsomething only when we're
looking at a real volatilemarket for eggs that this tool

(07:56):
will be useful?

Speaker 2 (07:59):
Yeah.
So I think it's definitely along-term product offering and I
think it's a long-term toolthat both consumers and
producers need to have in thetoolbox.
These types of one-off eventsor anomaly type events, like we
just went through, are a lot oftimes the catalyst for bringing

(08:21):
risk management tools to theforefront, and then they get
used for long periods of time.
A great example would be someof the custom meat swaps, so
I'll use pork bellies as anexample.
Covid was a catalyst to drivenew risk management tools to the

(08:42):
forefront, and now they're moreused today than they were even
then.
So I think the catalyst bringsthe tool to the forefront and
then it's a long-term solutionthat the industry can utilize to
help manage risk.

Speaker 1 (09:00):
What else do you want folks to know about this new
contract or these risk tools ingeneral?

Speaker 2 (09:05):
Probably the key here is again.
I go back to marketparticipation.
A lot of times with newproducts, people want to sand on
the sidelines and wait to seehow others get involved or see
how the contract develops.
Well, if everybody does that,the contract never develops, and

(09:27):
so I would encourage theindustry to come forward and be
a participant, be a marketparticipant, 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 tooland be able to utilize it.

Speaker 1 (09:50):
So then, the best place to go to get some more
information.

Speaker 2 (09:53):
Yeah, well, you can email me directly.
It's just ryanturner atstonexcom.
You can go to our website,stonexcom.
There's a landing page therefor more information
specifically on the shell eggcontract, and those would
probably be the two best ways.

Speaker 1 (10:12):
Very good.
Well, thank you so much forjoining us here today.

Speaker 2 (10:16):
Yeah, thank you for having me.

Speaker 1 (10:17):
I appreciate it.
I'm Sarah Muirhead and you'vebeen listening to Feedstuffs In
Focus.
If you would like to hear moreconversations about some of the
big issues affecting thelivestock, poultry, grain and
animal feed industries,subscribe to this podcast on
your favorite podcast channel.
Until next time, have a greatday and thank you for listening.