US20040230493A1

US20040230493A1 - Methods and systems for providing an average pricing contract for the sale of a commodity

Info

Publication number: US20040230493A1
Application number: US10/773,539
Authority: US
Inventors: Jason Tatge; Daniel Fritsch
Original assignee: Farms Tech LLC
Current assignee: Farms Tech LLC
Priority date: 2002-08-01
Filing date: 2004-02-06
Publication date: 2004-11-18
Also published as: US20030195822A1; WO2004013743A2; WO2004013743A3; US20040024648A1; AU2003259066A8; US7840475B2; US20040236637A1; US7991685B2; AU2003259066A1; US20090177574A1

Abstract

An Average Pricing Contract (APC) specifies the type of commodity and quantity of the commodity to be sold, as well as a plurality of pricing points for pricing the commodity. The APC stipulates that the sale price of the commodity will be based on an average of current cash market prices at the specified pricing points. The current cash market price of a commodity can be determined by obtaining a futures price of the commodity for a particular delivery location, and adjusting this futures price by a predetermined basis value. The APC will also state the delivery periods for physical delivery of the commodity and include the physical delivery location. An optional automatic hedging transaction is available for buyers who wish to offset risk that the commodity price will unexpectedly increase. In addition, the present invention can include displaying the progress of pricing the commodity, displaying final pricing information, and displaying the progress of delivery.

Description

CROSS REFERENCE TO RELATED APPLICATIONS

This is a continuation-in-part of co-pending patent application Ser. No. 10/209,994, entitled “Methods and Systems for Purchase of Commodities With Concomitant Hedging,” by Tatge et al., filed on Aug. 1, 2002, incorporated by reference herein in its entirety.[0001]

FIELD OF THE INVENTION

The present invention relates to commodity trading, and, more particularly, to methods and systems for providing an average pricing contract (APC) for the sale of a commodity.

BACKGROUND OF THE INVENTION

Commodity traders are faced with the problem of having to make trading decisions in volatile markets. In some cases, choosing an inopportune time to make a trade can damage profitability. For instance, grain elevators typically operate on small margins. If the grain elevator sells a quantity of grain when the price of the grain is at a low point, the grain elevator may lose money. However, often the price of a commodity recovers.

There are many factors that can cause a commodity to change price. However, many of these are difficult to predict. For example, the price of corn can be influenced by the weather in the so-called Corn Belt and the size of the cattle and poultry herds. Other factors can include the level of production, the price of competing feed grains, aggressiveness of government support programs, carryover stocks, and the price of corn sweetener substitutes. Furthermore, commodity prices can also be influenced by speculation and even rumors.

SUMMARY OF THE INVENTION

The present invention involves a seller of a commodity offering an Average Pricing Contract (APC) for the sale of a specified quantity of the commodity. The APC is preferably offered to prospective buyers via the Internet using Web-based technology described herein.

In general, an APC specifies the type of commodity and the quantity of the commodity to be sold, as well as pricing points for pricing the commodity. An APC stipulates that the sale price of the commodity will be determined based on the current cash market prices for the commodity, at the specified pricing points. The sale price will be an average of these current cash market prices. An APC will appeal to many market participants who wish to guard against frequent or unexpected price changes.

An APC also specifies a delivery period for physical delivery of the commodity and includes the physical delivery location. An optional automatic hedging transaction is available for buyers who wish to further offset risk that the commodity price will unexpectedly change. In addition, the present invention can include displaying one or more of: the progress of pricing the commodity, summary information to date, and final pricing information when the final pricing period is executed.

These and other aspects, features and advantages of the present invention will become apparent from the following detailed description of preferred embodiments, which is to be read in connection with the accompanying drawings.

BRIEF DESCRIPTION OF THE DRAWINGS

FIG. 1([0009] a) illustrates a preferred network for use in the invention;
FIG. 1([0010] b) illustrates a typical sever for use in the invention;
FIG. 2 is a flow chart of an embodiment of an invention for providing an Average Pricing Contract (APC); and [0011]
FIGS. 3-8 illustrate an exemplary sequence of screens that may be used in an embodiment of the invention to provide the APC.[0012]

DESCRIPTION OF PREFERRED EMBODIMENTS

Referring to FIG. 1 ([0013] a), a preferred network for use in the present invention is illustrated. A plurality of personal computers 20, are connected to an Internet service provider (ISP) 25 via a network connections 30, such as a modem and dialup telephone line, a digital subscriber line (“DSL”), or a cable modem connection. Internet service provider 25 interfaces with network 35, which comprises a plurality of Web content servers 40, including servers for control of domain-name resolution, routing, and other control functions.
The personal computers typically are configured with common Internet tools, including a Web browser to access [0014] servers 40 and specialized programs to connect with certain services. These services include electronic mail, one-to-many messaging (bulletin board), on-line chat, file transfer, and browsing. Browsing is effected using the Hypertext Transfer Protocol (HTTP), which provides users access to multimedia files using Hypertext Markup Language (HTML). The entire system of personal computers, internet service providers, and servers is called the Internet. The collection of servers 40 that use HTTP comprise the World Wide Web, which is the Internet's multimedia information delivery system.
FIG. 1([0015] b) provides the details of a typical server 40 for use in the present invention. Server engine 45 receives HTTP requests to access the Web pages 50 identified by Uniform Resource Locator (“URL”) and provides the Web pages as an interface to the requesting personal computer 20. The databases 55 contain various tables storing information such as buyer and seller information.
Referring to FIG. 2, a flowchart of a preferred embodiment of a method for providing an Average Pricing Contract (APC) is shown. [0016]
Initially, a seller of a commodity (hereinafter the “Seller”) selects the type and the quantity of a commodity to sell (S[0017] 1). This may be accomplished, for example, by the Seller initially connecting to an HTTP server (e.g., via a Web site), and selecting an appropriate procedure to create the APC. Once this procedure is invoked, a screen such as the one shown in FIG. 3, will be displayed. As depicted in FIG. 3, this screen includes a pull-down menu 301 for selecting a commodity (e.g., “Corn”), and a text box 302 for entering a quantity of the selected commodity to sell (e.g., 100,000 bushels).
The Seller then specifies the delivery periods for physical delivery of the commodity (S[0018] 2). This may be accomplished by entering a delivery start date (e.g., Sep. 24, 2003) into text box 303, and a delivery end date (e.g., Oct. 24, 2003) into text box 304. After entering this information, a search of buyer delivery periods that fall near the range of the entered delivery dates are displayed. The Seller must choose one of these delivery periods to ship the commodity. FIG. 4 illustrates a screen which may be used to select a delivery period and location. In this example, the Seller has selected button 401, indicating delivery at Dansville, Ill. between Oct. 1, 2003 and Oct. 15, 2003. (Note that these dates do not exactly coincide with delivery period initially entered by the Seller.)
Next, the Seller specifies the pricing criteria (S[0019] 3). As mentioned, the price of the commodity is determined as an average cash market price of the commodity at various pricing points specified in the contract. A cash market price will be determined by adjusting a futures price for the commodity by a specified basis value. The futures price will preferably be obtained via a market data feed from an organized futures exchange, such as the Chicago Board of Trade (CBOT). As an example, the futures exchange might indicate a futures price of $2.52 per bushel of corn. The basis value might be set at −$0.20. (A basis value is a positive or negative amount that is used to adjust the futures price to calculate a cash price). In this case, the cash market price would be calculated by adjusting the futures price (i.e., $2.52) using the basis value (−$0.20) to arrive at a cash price of $2.32 (i.e., $2.52−$0.20). The cash price will change frequently throughout the trading day.
Referring to FIG. 5. the Seller can use [0020] text box 501 to enter a pricing start date (e.g., Sep. 23, 2003) and text box 502 to enter a pricing end date (e.g., Sep. 23, 2003). Additionally, the Seller can select the days of the trading week by using the check boxes 503, as well as the time of the trading day, in which to obtain market prices. As depicted, the options include at the opening of trade, the close of trade, or a specified time. Here, the Seller entered “1:15 PM” into text box 505. In this example, the pricing points will occur at 1:15 PM on every Tuesday through Friday during the pricing period of Sep. 23, 2003 to Sep. 30, 2003.
Referring to FIG. 6, the five pricing points are displayed in [0021] window 601. As shown in this window 601, the first pricing point will be on Sep. 23, 2003 at 1:15 PM; the second pricing point will be on will be on Sep. 26, 2003 at 1:15 PM; the third pricing point will be on will be on Sep. 25, 2003 at 1:15 PM; the fourth pricing point will be on will be on Sep. 24, 2003 at 1:15 PM; and the fifth pricing point will be on will be on Sep. 30, 2003 at 1:15 PM. An approximately equal quantity of the commodity will be priced on each of these dates.
Next, a buyer of the commodity (hereinafter the “Buyer”) accepts the terms of the APC forming a binding contract between the parties (S[0022] 5). This may be accomplished by the Buyer logging onto the same Web site that the Seller used earlier to enter the APC, for example, and browsing various APC's that have been listed. The Buyer would read through the terms of the Seller's APC. As depicted in FIG. 7, the terms of the contract are displayed to the Buyer. To signify agreement, the Buyer would check an “Approve” button 701. A print function could also be available to allow the contract to be printed.
Finally, the APC will be executed (S[0023] 6). The pricing will occur automatically using market data from one or more commodity exchange and the basis level input by the Buyer who accepts the offer. Referring to FIG. 8, the progress of this pricing may be displayed and monitored by the parties. A status bar 801, can be used to graphically illustrate the level of completion of pricing progress. Following the final pricing period, an average of all the pricing points will be created, and a contract with the final prices will thereupon be generated. The quantity listed in the pricing periods will then be executed with the next tick received, the previous tick received or an average of a set amounts of previous or future ticks depending upon market volume. The Buyer will also have the option to allow an electronic futures order to be passed to the Buyer's current Introducing Broker (IB) or Futures Commodities Merchant (FCM) for hedging execution immediately following the cash pricing. For example, a buyer of corn might wish to sell futures contracts of this same commodity to hedge against a price decline. As another option, the Buyer may choose to place bushels in an aggregate position that will execute hedge orders when a certain volume threshold is obtained. This aggregate position will accumulate bushels of the commodity over time. Co-pending patent application Ser. No. 10/209,994, entitled “Methods and Systems for Purchase of Commodities With Concomitant Hedging,” by Tatge et al., filed on Aug. 1, 2002, describes this notion of automatic hedging transactions in more detail.
While the exemplary screens depicted in FIGS. 3-8 use various graphical elements, it should be appreciated that the same, or similar, functionality can be accommodated using a variety of other graphical elements. The screens depicted in FIGS. 3-8 may include any other device capable of defining an APC, such as a command line interface, a touch-sensitive display, a keyboard, or the like, without departing from the spirit and scope of this invention. [0024]
Although illustrative embodiments of the present invention have been described herein with reference to the accompanying drawings, it is to be understood that the invention is not limited to those precise embodiments, and that various other changes and modifications may be affected therein by one skilled in the art without departing from the scope or spirit of the invention. [0025]

Claims

What is claimed is:

1. A computer-implemented method for offering an average pricing contract for a commodity, comprising the steps of:

specifying a commodity;

specifying a quantity of the commodity;

specifying pricing points for pricing the commodity; and

offering to sell the quantity of the commodity at a price to be determined based on current cash market prices for the commodity at the pricing points.

2. The method of step 1, wherein the price is an average of the current cash market prices.

3. The method of claim 1, wherein each of the current cash market prices for the commodity is determined by

obtaining a futures price for the commodity; and

adjusting the obtained futures price by a specified basis value.

4. The method of claim 1, wherein specifying the pricing points includes specifying a pricing period.

5. The method of claim 1, further including specifying the pricing points for each of specified days of the week during a pricing period.

6. The method of claim 5, wherein the pricing points occur at one of a specific time, an opening trade, and a closing trade.

7. The method of claim 1, further including the step of specifying a delivery period.

8. The method of claim 1, further including the step of specifying a delivery location.

9. The method of claim 1, wherein the offering step includes posting the offer via the Internet.

10. The method of claim 1, further including the step of forming a contract by accepting the offer.

11. The method of claim 1, further including the step of displaying the progress of delivery of the commodity.

12. The method of claim 1, further including the step of displaying the progress of pricing of the commodity.

13. The method of claim 1, further including the step of displaying final pricing information.

14. The method of claim 13, further including executing the contract at the final price.

15. The method of claim 1, further including the step of automatically providing a hedging transaction for the buyer of the commodity.

16. A system for offering an average pricing contract for a commodity, comprising:

an input component for specifying a quantity of the commodity and pricing points for pricing the commodity; and

a site for offering to sell the quantity of the commodity at a price to be determined based on an average of current cash market prices for the commodity at the inputted pricing points.

17. The system of claim 16, wherein each of the current cash market prices for the commodity is determined by obtaining a futures price for the commodity, and adjusting the obtained futures price by a specified basis value.

18. The system of claim 16, wherein the input component is configured to allow specification of a pricing period.

19. The system of claim 16, wherein the input component is configured to allow specification of the pricing points at one of a specific time, an opening trade, and a closing trade.

20. The system of claim 16, wherein the input component is configured to allow specification of a delivery period.

21. The system of claim 16, wherein the input component is configured to allow specification of a delivery location.

22. The system of claim 16, wherein the site is a Web site.

23. The system of claim 16, wherein an automatic hedging transaction is generated for the buyer of the commodity.

24. A program storage device readable by a machine, tangibly embodying a program of instructions executable on the machine to perform method steps for for offering an average pricing contract for a commodity, the method steps comprising:

specifying a commodity;

specifying a quantity of the commodity;

specifying pricing points for pricing the commodity; and