CROSS REFERENCE TO RELATED APPLICATIONS
FIELD OF THE INVENTION
This is a continuation-in-part of co-pending U.S. 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.
- BACKGROUND OF THE INVENTION
The present invention relates to methods and systems for managing commodities transactions.
Grain elevators provide facilities for elevating, storing, discharging, and sometimes processing grain. Currently, operators of grain elevators and grain producers conduct a majority of their business by phone. Elevator operators are constantly on the phone trying to find grain. Once a buyer locates a seller for the desired grain, he then needs to negotiate a price. After the grain is purchased, the buyer may need to call a futures broker to place a futures hedge on the grain just purchased. Then the buyer starts the process all over again.
- SUMMARY OF THE INVENTION
An elevator operator may have anywhere from 100 to 2,000 different producers to check prices daily. It is very difficult for a buyer to remember who is offering what amount and at what price. With the futures price constantly changing, local basis levels constantly changing, and the phone-ringing non-stop it is difficult to execute transactions in an orderly manner and informed commodity trading decisions.
According to an aspect of the invention, a system for managing commodity transactions comprises a computer system with a memory storage device, a processor connected to the storage device, and a program for controlling the processor. The memory storage device and the processor are operative with the program to provide an electronic marketplace for facilitating commodity transactions, provide hedge transactions for buyers of the commodities, the hedge transactions automatically generated, and provide a decision-support tool for facilitating trading strategies.
According to another aspect of the invention, the reliability of market data can be ensured by bypassing “false tick” information. False tick information is generally the result of erroneous market data. A method of detecting false tick information to enhance reliability of market data comprises the steps of obtaining a first value and a second value, comparing the first value with the second value, and holding the second value, only if the second value exceeds the first value by more than a predetermined amount. In the context of false tick detection, the first value can be price information associated with a current market tick and the second value price information associated with an immediately prior market tick. Additionally, the method can includes the steps of obtaining a third value, comparing the third value with the second value, and outputting the second value, only if the second value is not greater than the third value by more than the predetermined amount. The predetermined amount may be entered by a user via any suitable input means.
According to another aspect of the invention, a method of dynamically adjusting a basis value in accordance with incremental changes in a corresponding futures market includes the steps of offering to purchase a specified amount of a commodity for a specified price; and adjusting the specified price in accordance with a predetermined rule based at least in part on behavior of a futures market.
According to another aspect of the invention, a method of displaying graphical information to analyze trends in a local cash market for a commodity, includes the steps of obtaining cash price information for a specified commodity for a specified period for a specified buyer; and displaying information in a graphical manner associated with the obtained cash price information.
According to another aspect of the invention, a method of monitoring real-time information from a plurality of markets to simultaneously execute margin targets, includes the steps of obtaining real-time market information including input prices and output prices; determining an input cost based at least in part on the obtained input prices; determining an output revenue based at least in part on the output prices; and determining an amount of profit at least in part based on the difference between the determined output revenue and the determined input cost.
BRIEF DESCRIPTION OF THE DRAWINGS
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.
FIG. 1 is a flow chart of a preferred embodiment of an invention for purchase of a commodity with a concomitant hedge transaction;
FIG. 2a illustrates a preferred network for use in the invention;
FIG. 2b illustrates a typical sever for use in the invention;
FIG. 3 is a flow chart outlining an exemplary method for detecting false tick information;
FIG. 4 illustrates various graphical information useful for showing historic trends in local cash markets; and
DESCRIPTION OF PREFERRED EMBODIMENTS
FIG. 5 illustrates an interactive tool to process real-time information for execution of various transaction strategies.
FIG. 1 is a flow chart of a preferred embodiment of the invention described in the parent application (“Methods and Systems for Purchase of Commodities With Concomitant Hedging,” by Tatge et al., filed on Aug. 1, 2002).
First, as indicated in step 101, a buyer (or multiple buyers) provides bid data on the invention's network platform for a commodity desired to be purchased (“purchase commodity”) using the methods and systems of the invention. According to the invention, the commodity the buyer wishes to purchase can be any item or service. It is not required for the purchase commodity to be listed on an exchange. Each buyer participating in the platform may desire to purchase the same or a different commodity. Bid data typically includes the bid price, quantity desired, and point of delivery and, optionally, other relevant data. Of course, relevant data will vary depending on the commodity. Examples of relevant data include, but are not limited to, quantity sought, quality, delivery date, and delivery place etc.
Typically, a buyer selects the listed commodity with which he will hedge his purchase (i.e., the hedge commodity) to calculate the bid price. The methods and systems of the invention can receive and process real-time exchange rate quotes for listed commodities. Using these real-time quotes, the methods and systems of the invention can automatically and continually calculate and update the bid price based on the hedge commodity's real time quote. For example, the invention can automatically and continually calculate and update the buyers' bid prices by subtracting the buyer's basis from the real-time exchange-rate quote for the hedge commodity. Alternatively, the buyers can calculate a bid separately from the software and enter it manually.
As illustrated in step 102, the buyers enter information respecting a hedge transaction. Typically this includes the hedge commodity to be purchased or sold, the amount, the introducing broker or futures clearing merchant from which it can be purchased, and ID or account numbers required by the introducing broker or futures clearing merchant. Typically, the hedge transaction will be executed at the time that a seller agrees to sell a commodity on the terms specified by the buyers.
Next, as indicated in step 103, one or more sellers will review the bid data and submit sell data for the purchase commodity to the network platform. Sell data includes sell price and other relevant data, herein termed “sell data parcels”. As with the bid data, relevant sell data will vary depending on the commodity, for example, quantity for sale, quality, and proposed delivery date and place etc.
Next, as indicated in step 104, the methods and systems of the invention monitor the bid and sell data to identify conformance between the bid data and a particular seller's sell data. Depending on the commodity, conformance might require only a match in sell and buy price or may require the seller's commodity to conform with other specifications, such as quality, age, color, or type etc.
Preferably, as indicated in step 105, when a conformance occurs, the program automatically alerts the conforming buyer and conforming seller (preferably by e-mail) and automatically discontinues that buyer's bid.
As indicated in step 106, the methods and systems of the invention automatically transmit the hedge transaction programmed by conforming buyer to an introducing broker or futures clearing merchant. For example, a futures clearing merchant, such as Advanced Trading, will electronically send a futures order to a trade executor, such as EDFMAN, which has trading terminals or the floor of the Chicago Board of Trade.
Preferably, the methods and systems of the invention are Web based and located on a Web server. In a preferred embodiment, the Web site will further comprise information relevant to the commodities purchased and sold. For example, a Web site of the invention directed to agricultural commodities might display relevant current news, weather, and market information as well as a “Local Trends” section that allows the buyer to provide their own daily commentary of local information.
A preferred network for use in the present invention is illustrated in FIG. 2a. 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 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. 2b 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.
FIGS. 3-7 describe various enhancements to the invention described in the parent application. However, it should be appreciated that these features do not necessarily need to be implemented in conjunction with the invention disclosed in the parent application.
A first embodiment involves a technique for bypassing “false ticks”. Through experience with real-time markets, it has been observed that occasionally a false tick occurs on various futures exchanges (e.g., the Chicago Board of Trade) that might cause firm offers to trade in an automated system. False ticks are often the result of human error from individuals entering erroneous information from the exchanges for redistribution. Previously, if a false tick was viewed on a live quote screen, human interpretation might allow a viewer to wait until the next tick came in to assure the market price displayed was indeed the correct price and not an error. However, an automated system that make use of futures information can easily be misled by false tick information.
FIG. 3 is a flow chart of an exemplary method for bypassing false tick information. In step 301, current tick information is obtained from an information provider. Next, in step 302, a determination is made as to whether the change in price between the current market tick and the prior market tick is greater than a predetermined threshold value. If the threshold value is exceeded, control passes to step 303 where any previously held ticks can be discarded and then to step 304 where the current tick information is placed on hold. As an example, assume that the current tick price is $2.50, the prior tick price is $2.45, and the threshold value is two cents. In this case, the threshold would have been exceeded and the current tick price would therefore be held.
However, if the change in the price did not exceed the threshold value, control then passes to step 305 where a determination is made as to whether any ticks are being held. In step 303, any ticks being held are outputted and in step 307 released. In step 308, in either case, the current tick information is then outputted.
It should be appreciated that the threshold value may represent any suitable value including, for example, a percentage, an integer value, a fractional value, etc. The threshold value is preferably entered by a systems administrator via an input screen (not shown). The process described in FIG. 3 iterates each time new market information becomes available from the information provider.
A second embodiment enables a commodities buyer the ability to dynamically change their basis values in accordance with predetermined incremental changes in the futures market. Assume that a buyer defines the ratio of futures-to-basis values to be +$0.01/bu: +$0.005/bu. The following results illustrated in Table 1 might then be obtained.
| ||TABLE 1 |
| || |
| || |
| || ||JULY CORN || || |
| || ||FUTURES |
| ||TIME ||(CBOT) ||BASIS ||CASH BID |
| || |
| || 9:30 am ||$2.52 ||$0.20 ||$2.32 |
| || 9:45 am ||$2.54 ||$0.19 ||$2.35 |
| ||10:00 am ||$2.56 ||$0.18 ||$2.38 |
| ||10:15 am ||$2.55 ||$0.185 ||$2.365 |
| ||10:30 am ||$2.53 ||$0.195 ||$2.335 |
| ||10:45 am ||$2.50 ||$0.21 ||$2.29 |
| || |
As can be seen from Table 1, as the July corn futures price increases, the basis value decreases (and vice versa). This may be an appropriate strategy for buyers who desire to be more aggressive when the price of a commodity is tending upward. On the other hand, some buyers may wish to increase their basis when the futures prices are increasing (and vice versa). Advantageously, the present invention can accommodate either strategy. It is to be appreciated that the information in Table 1 is presented for illustrative purposes only.
A third embodiment allows users the ability to view various graphs to analyze trends in their local cash markets. These graphs may be assigned to each specific delivery period that a buyer defines for firm offers to price against. Graphs useful for technical analysis of various market trends can also be provided.
FIG. 4 illustrates exemplary charts useful for illustrating historic price trends for local cash markets. As illustrated, each vertical bar in graph A, such as bar 402, shows the high and low price for an interval (e.g., a trading day) as well as the open and close price. For example, bar 402 shows that on May 12, 2003, the price of corn delivered from “Barron Mill #2” ranged from a high of approximately $2.32 to a low of $2.24. The open price was only slightly above the low price and trading of the commodity finished trading at $2.25.
In addition to showing intraday information, various technical analysis tools can also be used. FIG. 4 shows, for example, a 10-day moving average, a 30-day moving average, and Bollinger Bands.
It should be appreciated that various other types of graphical information and technical analysis tools may be employed without departing from the spirit and scope of the present invention.
A fourth embodiment comprises an innovative interactive tool to process real-time market information and execute strategies based on target values.
Consider the case of a cattle producer who wishes to take a cow to market. The cattle producer knows that input costs account for a certain percent (e.g., 70%) of the total cost to take a cow to a target weight. The producer also knows that it will take a certain number of days (e.g., 200) for the cattle to reach their target weight. The producer's feed costs fluctuate daily with the grain markets and marketing prices fluctuate daily with the fat cattle markets. The producer desires to lock in a simultaneous feed purchase and sale of cattle futures to receive a guaranteed margin of, say, 12%.
FIG. 5 illustrates an exemplary screen to monitor and display in real time these values and the difference between them in dynamic fashion.
As depicted in FIG. 5, the Chicago Board of Trade (CBOT) price for corn is $2.35 per ton. The screen indicates that approximately 20 pounds of corn will be consumed each day. At a price of $2.35 per ton, the corn will cost $0.3571 per pound. Because 20 pounds of corn are consumed each day, the total cost per day is calculated and shown to be $0.8393. The system determines that it will take an estimated 100 days to reach output weight. Thus, the total cost of the corn is shown as $83.923. Additionally, the system displays the CBOT price for soybean meal at $180 per ton. The system estimates that 10 pounds of soybean meal are consumed each day. The screen shows that the cost of soybean meal per pound is $0.090 Because 10 pounds of soybean meal are consumed each day, the total cost of soybean meal is $0.90 per day. As mentioned, it will take 100 days to reach the target weight. Thus, the soybean meal will cost $90. Accordingly, the total input cost is shown as $173.93 (i.e., $83.93 for the corn and $90 for the soybean meal).
The invention also displays the cost of cattle futures for both feeder cattle and marketable cattle. As depicted in FIG. 5, the feeder cattle are quoted at 72 cents per pound and the marketable cattle at 78 cents per pound. Given that the cattle will gain 300 pounds during the feeding period, the system can calculate the total profit. In particular, the system determines the cost of the feeder cattle by multiplying the weight of the feeder cattle (e.g., 800 pounds) by the cattle futures price of 72 cents per pound to obtain a cost of $576. The input cost of $173.93 is then added to the cost of the feeder cattle to arrive at the total cost to purchase the feeder cattle and to fatten it to the desired weight. In this case, it would be $749.93. The system then calculates the amount of revenue from selling the cattle. Since the cattle would then weigh 1,100 pounds (800 pounds+300 pounds gained during the fattening period), the sale amount is calculated as $858 (i.e., 1,100 pounds×78 cents per pound). The total profit to the cattle producer is the difference between the revenue received from the sale of the cattle and the total cost to purchase the feeder cattle and the input items. In this case, the amount of profit would be $108.07. The screen indicates that the total return to the cattle producer is 14.41 percent.
A fifth embodiment enables a predetermined basis value to be locked in, by either traditional telephone negotiations or by system negotiations. In this manner, a seller can price certain portions of an existing basis contract at specific limit values entered into the system. Should the futures market move in accordance with the specific limit values, quantities of the un-priced contract will be priced and appropriate futures transactions will be generated.
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.