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[0001] This application is a continuation of application Ser. No. 10/209,994, filed on Aug. 1, 2002, entitled Methods And Systems For Purchasing Commodities With Concomitant Hedging, which application is hereby incorporated herein by reference.
[0002] The invention is directed to methods and systems for purchasing commodities with concomitant hedging.
[0003] Today, the Internet hosts a multitude of sites and protocols whereby the sale of goods and commodities can be consummated. The majority of such sites and protocols are seller oriented where a seller advertises goods or commodities to a multitude of buyers to achieve an optimized selling price. The seller's goal is straightforward, i.e., once the goods are sold, the seller has achieved his objective.
[0004] Commodity buyers often hedge their purchases against the listed exchange rate for the same or a different commodity. For example, buyers of agricultural products often sell futures contracts at the exchange rate listed by the Chicago Board of Trade to hedge their purchases (i.e., take a short futures position). These “hedge purchasers” face a more complicated series of transactions than do sellers. Thus, it is not surprising that the seller-oriented platforms currently available on the Internet do not fully satisfy the hedge buyer's needs. First, the buyer must advertise a bid price to a plurality of sellers. Since the buyer will hedge his purchase, his bid price is based on the exchange rate listed for a particular hedge commodity (which may be the same commodity he is seeking to purchase). Since the hedge commodity's exchange rate is constantly fluctuating, the buyer must constantly adjust and post his current bid price. Furthermore, once the buyer buys, he should immediately complete the hedge transaction to avoid adverse price shifts of the hedge commodity.
[0005] A futures contract is a standardized contract to make or take delivery of a commodity or financial instrument at a predetermined time and place. Thus, a futures contract locks in a price for a future date. Some of the most popular futures contracts traded in the United States today are equity-based contracts such as the Dow Jones Industrial Average; interest rate contracts such as Treasury bonds and Treasury notes; agricultural contracts, such as corn, soybeans, and wheat; and precious metals, such as silver and gold.
[0006] Hedging is the practice of offsetting the price risk inherent in any cash market position by taking an equal but opposite position in the futures market. Hedgers use the futures markets to protect their business from adverse price changes. Thus, Hedgers try to protect themselves from an inherent price risk associated with a future purchase or sale of an asset. A wide variety of institutions and individuals hedge, such as mortgage bankers, stock portfolio holders, food processors, and farmers. The classic example of a hedger using the futures market as a risk management tool is a farmer. Buyers of commodities often take a short futures position, which is a position in the market where one has sold futures contracts to offset risk. Because of the complexity of completing a transaction, hedge buyers generally spend long hours on the phone to transmit bids, consummate sales, and place their hedge.
[0007] Grain elevators provide facilities for elevating, storing, discharging, and sometimes processing grain. Country elevator operators, who generate a majority of their revenue through put-through and storage charges, have little desire to take on risk and thus hedge grain purchases against the futures price listed at the Chicago Board of Trade. Currently, grain elevators and grain producers conduct a majority of their business buy phone. Elevator operators are constantly on the phone trying to find grain. Once the buyer locates a seller for the desired grain, he then needs to negotiate the price. After the grain is purchased, the buyer then needs to call a futures broker to place a futures hedge on the grain just purchased. Then the buyer starts the process all over again. An elevator operator may have anywhere from 100 to 2,000 different producers calling 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 fashion.
[0008] There are several factors that can simultaneously affect the price a grain elevator operator is willing to pay at a given time. In general, an elevator operator calculates his bid price based on a basis, which is the difference between the grain's current local cash price for a specific delivery period and the futures option price the commodity is being put against. The elevator buys the product this way because it makes it easier for them to hedge their purchases. When a grain producer calls to get a bid for his product, the elevator operator adds or subtracts his local cash basis from the Chicago Board of Trade futures price to come up with a flat price to quote to the grain producer.
[0009] Because hedge buyers (e.g., grain elevator operators) face a complicated series of transactions that require numerous hours on the telephone, there is a need for improved methods and systems for purchasing commodities with concomitant hedging.
[0010] The invention is directed to methods and systems for purchase of commodities with concomitant hedging. Multiple buyers and sellers can participate in the platform for any number of different commodities. The invention enables a prospective buyers of commodities the opportunity to automatically procure the commodity at a desired basis level when a seller's price matches a buyer's basis bid, and automatically place an electronic order for a listed commodity to hedge the purchase (“hedge commodity”). The methods and systems of the invention further enable the sellers to: (1) place on offer to sell to a buyer or place the same offer to sell to multiple buyers; (2) view buyer information and select the particular buyers with which to transmit sell data, e.g., based on buyer's requested delivery point; (3) continually monitor the buyers' basis bids, for example, from a Web site; (3) be notified when the sell data conforms to the buy data of a buyer. In one embodiment, sellers will manipulate their sell data to conform to the buyer's bid data, thus, the cheapest buyer will typically prevail and win the seller's offer. A buyer can specify multiple delivery options; his basis will typically reflect, among other variables, his costs corresponding to the particular point of delivery.
[0011] These and other features, aspects, and advantages of the invention are better understood with regard to the following description, appended claims, and accompanying drawings where:
[0012]
[0013]
[0014]
[0015]
[0016]
[0017]
[0018]
[0019] 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 calculates 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.
[0020] As illustrated in Box
[0021] Next, as indicated in Box
[0022] Next, as indicated in Box
[0023] Preferably, as indicated in Box
[0024] As indicated in Box
[0025] 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.
[0026] A preferred network for use in the invention is illustrated in
[0027] The personal computers typically are configured with common Internet tools, including a Web browser to access servers
[0028]
[0029] Referring to
[0030] Sellers review the bid data through seller interfaces
[0031] Any conventional personal computer, computer workstation, or server with sufficient memory and processing capability may be used as central station
[0032] As shown in
[0033] Examples of processors suitable for use in the invention include, but are not limited to, those sold by Sun Microsystems, Motorola, and Intel.
[0034] The RAM should preferably be of the error-correcting code (ECC) memory type and should be from 512 MB to 1 GB in total capacity.
[0035] The operating system should be robust and provide for security of the data in storage. Exemplary operating system include LINUX®, UNIX, Windows 2000®, or Windows NT®.
[0036] Data-storage device
[0037] Buyer table
[0038] Seller table
[0039] Bid and sell-price table
[0040] Commodities table
[0041] In a preferred embodiment, database software, such as SQL Server, manufactured by the Microsoft Corporation, is used to create and manage the database and tables. Other relational database products (e.g., those manufactured by Oracle Corp.) can be used for data storage management.
[0042] Referring to
[0043] 5.1.1 Software of the Invention
[0044]
[0045] (1) a program to receive real-time commodity exchange-rate quotes from an exchange, and introducing broker, or futures clearing merchant;
[0046] (2) a program to automatically calculate a buyer's bid based on the exchange-rate quote for a commodity;
[0047] (2) a database for receiving dynamic data;
[0048] (3) a program for displaying, entering, and transmitting bid and sell price data to the buyer and seller interfaces;
[0049] (4) a program to identify when sell data conforms to bid data, withdraw buyer bid, and alert the buyer and seller of the match; and
[0050] (5) a program to automatically transmits a hedge transaction to an introducing broker or futures clearing merchant.
[0051] The software of the invention comprises a program to receive and process real-time exchange rate quotes for listed commodities (
[0052] Software of the invention comprises dynamic database (
[0053] The software of the invention further comprises a program (
[0054] The software of the invention further comprises a program (
[0055] The software further comprises a program (
[0056] There are many commercial software applications that can enable the communications required by seller interface
[0057] Preferably, the software of the invention is Web based and located on a Web server. Software of the invention is readily designed by one of skill in the art or available commercially.
[0058] 5.1.2 Calculation of the Bid Price by the Buyer
[0059] A buyer calculates a bid price based on many different factors and variables including the nature of the commodity sought and the listed hedge commodity, their current exchange rate, market trends, etc. For example, a buyer may calculate his bid price by subtracting a basis from the current exchange rate of a particular listed hedge commodity.
[0060] Typically, a grain elevator will calculate a bid price for a desired quantity of grain by subtracting a basis. The basis is the arithmetical difference between the local cash price for the grain and its corresponding futures price listed by the Chicago Board of Trade at a point in time. This allows the elevator to effectively hedge his purchase of grain. Although cash and futures prices do not always parallel one another, often a cash-price shift results in a similar futures shift, particularly if some unexpected event causes a violent price change. The basis may, among other things, reflect the elevator's expenses and allow for a profit. Basis considerations for an elevator purchasing grain might include local supply issues, such as the predicted quality of the coming year's crop and local demand issues, as well as national and world grain indicators. For discussions, see TEWELES ET AL., THE FUTURES GAME; WHO WINS WHO LOSES AND WHY 33 (1987); HENRY B. AUTHUR, COMMODITY FUTURES AS A BUSINESS MANAGEMENT TOOL 64-69 (1971), both of which are hereby incorporated herein by reference.
[0061] 5.1.3 The Seller's Interface and Posting the Sell Data
[0062] Initially, the seller must establish an account with the buyer. Typically this requires the seller to provide name, address, contact information, credit information, etc. The seller will calculate his sell price bases on a number of different factors specific for the commodity he wishes to sell. Cost of delivering the commodity to the buyer upon sale “freight” costs is typically included, particularly in selling agricultural products, such as grain. Thus, a farmer will first calculate a “net” sell price and add a different freight cost depending on the buyer's location.
[0063] The seller logs onto central station
[0064] The software of the invention allows the seller to access, through seller interface
[0065] The seller can then enter a firm sell price as well as other required information according to the platform policy. The offer will remain open for a period of time depending on the platform policy.
[0066] The seller logs onto the platform (typically hosted and operated by the buyer) and enters information required by the platform policy, such as seller information, quantity, delivery date, sell price, etc. As discussed above, a multitude of sellers can be logged on a buyer's platform and bid against one another.
[0067] Authentication of the seller's identity involves central station
[0068] Central station
[0069] In another embodiment, the seller transmits the seller response directly to the buyer. The buyer may then send the seller a response through central station
[0070] The software and platform of the invention monitors the sell price data and bid price data to detect conformation therebetween. Conformance can occur if, for example, the bid price matches the sell price: (1) seller lowers the sell price to equal the bid price, or (2) the buyer raises the bid until it equals the sell price. The seller can monitor the buyer's bid prices, perhaps adjust his sell price, or simply turn off his computer and wait for the buyer's bid to match the sell price.
[0071] An example of what information a seller's interface (here seller A) might display according to the invention is shown in Tables 1.1-1.3 below. Values are included in Table 1 for exemplary purposes. In this example, the seller entered the platform of the invention, for example, by way of a Web page interface, viewed buy data for a plurality of buyers, and chose to offer to sell to buyer's 001, 002, and 003 at a specific price based on the commodity they offered to buy, their location (e.g., to account for delivery costs), their buy price, and other information.
TABLE 1.1 Seller's Interface For Buyer 001 buyer: 001 quantity requested: 100 units delivery date: immediately delivery location: buyer 001's address Time quantity for sale sell price buyer's bid difference 1 100 units $10.00/unit $9.95/unit $0.05 2 100 units $10.00/unit $9.98/unit $0.02 3 100 units $10.00/unit $10.00/unit $0.0 (sold)
[0072]
TABLE 1.2 Seller's Interface For Buyer 002 buyer: 002 quantity requested: 100 units delivery date: immediately delivery location: buyer 002's address Time quantity for sale sell price buyer's bid difference 1 100 units $10.10/unit $9.96/unit $0.14 2 100 units $10.10/unit $9.97/unit $0.13 3 100 units $10.10/unit $8.80/unit $0.30
[0073]
TABLE 1.3 Seller's Interface For Buyer 003 buyer: 003 quantity requested: 100 units delivery date: immediately delivery location: buyer 003's address Time quantity for sale sell price buyer's bid difference 1 100 units $10.20/unit $9.90/unit $0.30 2 100 units $10.20/unit $9.91/unit $0.29 3 100 units $10.20/unit $9.92/unit $0.28
[0074] Tables 1.1-1.3 illustrates the general case where a seller A entered a sell price and waited for one of a plurality of buyer's—seeking to purchase seller A's commodity—bid to match the sell price. This occurred at time point
[0075] 5.1.4 The Buyer Interface and Posting the Bid Data
[0076] The software of the invention allows the buyer to access, through buyer interface
[0077] Table 3 below is a general example of information that might be displayed on the buyer's interface TABLE 2 Buyer's Experience buyer: 001 quantity requested: 100 units delivery date: immediately delivery location: buyer 001's address Time quantity for sale sell price buyer's bid difference Seller ID No. 001 1 100 units $10.00/unit $9.95/unit $0.05 2 100 units $10.00/unit $9.98/unit $0.02 3 100 units $10.00/unit $9.50/unit $0.50 Seller ID No. 002 1 100 units $10.50/unit $9.95/unit $0.55 2 100 units $10.50/unit $9.98/unit $0.52 3 100 units $10.50/unit $9.50/unit $1.00 Seller ID No. 003 1 100 units $10.00/unit $9.95/unit $0.05 2 100 units $10.00/unit $9.98/unit $0.02 3 100 units $9.50/unit $9.50/unit $0.0 (sold)
[0078] In the above example, seller 003 sold
[0079] 5.1.5 Placing the Hedge Transaction
[0080] As discussed above, in a preferred embodiment, the software of the invention automatically executes a hedge transaction for the buyer when the sell-price and buy-price data match. The software of the invention prompts the buyer through buyer interface
[0081] The execution can be any means effective to notify an introducing broker or futures clearing merchant to place the order to buy or sell the hedge commodity. For example, the software of the invention can be configured to transmit an electronic mail or voice mail order to an introducing broker or futures clearing merchant. The broker can read the e-mail or listen to the voice mail and then execute the transaction. Preferably, the software of the invention is configured to directly buy or sell the hedge commodity through a commodities-trading interface (
[0082] For example, the Chicago Board of Trade's Electronic Open Outcry Market enables futures clearing merchant member firms to electronically manage customer business from both off-floor and on-floor locations. The crucial component is that an electronic customer order ticket (e-ticket) is created during the order initiation phase and new information is added to that original order during the trade execution and trade processing phases.
[0083] During the order initiation phase, the order is electronically created by software of the invention through an Internet order entry system. In the trade execution phase, the broker receives the electronic order ticket. The broker executes the order and adds the execution price and opposing firm/broker information to the ticket. The broker also adds trade endorsement data to a flashed-order ticket. Then the tickets are electronically returned to the futures clearing merchant member firm.
[0084] In the trade confirmation/processing phase, the futures clearing merchant order entry staff (and Internet customer) receive the electronic trade confirmation. The futures clearing merchant back office also receives that same electronic trade ticket. There, additional account information is automatically downloaded onto the order ticket and the ticket is sent on to clearing for trade matching on a real-time basis.
[0085] As used herein, the term “network” means any system of two or more interconnected computers. Examples of networks include, but are not limited to, the Internet and other Wide Area Networks (WANs), and Local Area Networks (LANs).
[0086] As used herein, the phrase “network connection” means any channel by which a person, party, or business entity can interface or communicate with a network. Examples of network connections include, but are not limited to, telephone lines by way of internal or external modems, digital subscriber lines (“DSL”), voice mail and voice pages; dedicated data lines; cellular phone communication; communication by way of satellite; and cable television lines.
[0087] As used herein, the term “platform” means a system of software and hardware located on a network that performs a function, such as providing services or information and which is accessible through a network interface.
[0088] As used herein, the phrase “platform policy” means a set of rules and protocols governing access to and use of services offered on a platform. Platform policies will govern access to and use of services offered through a Web page, voice page, or other network interface. Examples of platform rules include entry of passwords and account information, payment of fees, prohibited use of profane language, methods of payment, and dates when payments are due.
[0089] As used herein, the term “interface” means a displayed or transmitted, user friendly set of pictures, text, or voice statements that provide instructions and protocols indicating how a user is to communicate and interact with a platform. For example, an interface allows a user to direct computer software located on the user's computer or within a network. Examples of interfaces include, but are not limited to, Web pages, e-mail transmittals, voice pages, voice mail instructions, and facsimile transmissions (fax). An interface is displayed or provided by an “interface provider”, for example, a personal computer displaying a Web page interface.
[0090] As used herein, the term “automatically” means execution by computer software upon occurrence of an event or satisfaction of a condition without instruction from or intervention of a user.
[0091] As used herein, the term “buyer” means any person, party, or business entity that desires to purchase a commodity.
[0092] As used herein, the term “seller” means any person, party, or business entity that desires to sell a commodity.
[0093] As used herein, the term “commodity” means any good or service that can be purchased.
[0094] As used herein, the phrase “listed commodity” means any commodity that is listed on an exchange. Exchanges include, but are not limited to United States exchanges, for example, American Stock Exchange, Chicago Board of Exchange, Chicago Board of Trade, Chicago Mercantile Exchange, Coffee, Sugar & Cocoa Exchange, Currenex (currency exchange), Futurecom: Electronic Trading Exchange, International Securities Exchange (options), NASDAQ Stock Market, New York Board of Trade, New York Cotton Exchange, New York Mercantile Exchange, New York Stock Exchange, OTC Bulletin Board, Arizona Stock Exchange, Boston Stock Exchange, Chicago Stock Exchange, Cincinnati Stock Exchange, Iowa Electronic Markets, Kansas City Board of Trade, Mid America Commodity Exchange, Minneapolis Grain Exchange, Pacific Exchange, Philadelphia Stock Exchange, San Diego Stock Exchange, Archipelago (ARCA), Attain (ATTN), Bloomberg Tradebook (BTRD), GlobeNet, Island (ISLD), Instinet (INCA), MarketXT, NexTrade (NTRD), onExchange, Primex, REDIbook (REDI), and Strike (STRK); Canada exchanges, such as Canadian Venture Exchange (merger of the Alberta and Vancouver exchanges), Montreal Exchange (Bourse de Montréal), Nasdaq-Canada, Toronto Stock Exchange, Winnipeg Commodity Exchange, and Winnipeg Stock Exchange; European exchanges, for example, EASDAQ (see NASDAQ Europe), Eurex: The European Derivatives Market, Euronext (merger of the Amsterdam, Brussels, and Paris exchanges), International Petroleum Exchange, Jiway.com, NASDAQ Europe; Austrian Exchanges, for example, NEWEX, and Wiener Börse (Vienna Stock Exchange and Austrian Futures & Options Exchange); French exchanges, for example, Bourse de Paris (see Euronext), Marche a Terme International de France (MATIF), Marche des Options Negociables de Paris (MONEP), and Nouveau Marché; German exchanges, for example, Baden-Württembergische Wertpapierbörse zu Stuttgart, Bayerische Börse (Munich), Berliner Wertpapierbörse (Berlin Stock Exchange), Bremer Baumwollbörse (Bremen Cotton Exchange), Deutsche Börse, Hamburger Börse, Neuer Markt, Rheinisch-Westfälische Börse zu Düsseldorf, SMAX (small caps), Warenterminbörse Hannover (Commodity Exchange Hannover), and Xetra: an ECN; Russian exchanges, for example, Inter-Republican Universal Commodity Exchange (Offline 2 May 2001), Moscow Interbank Currency Exchange, Moscow Central Stock Exchange, Moscow Stock Exchange, Nijny Novgorod Stock and Currency Exchange, Russian Exchange, Russian Trading System, St. Petersburg Futures Exchange, St. Petersburg Monetary Exchange, St. Petersburg Stock Exchange, Siberian Interbank Currency Exchange, Siberian Stock Exchange (Under construction), Ural Stock Exchange, and FCSM of Russia Information Disclosure Program (Russian EDGAR); The Switzerland Swiss Exchange; English exchanges, for example, Baltic Exchange, E-Crossnet: an ECN, London Clearing House: an ECN, London International Financial Futures and Options Exchange, London Metal Exchange, London Securities and Derivatives Exchange, London Stock Exchange, and virt-x (formerly Tradepoint Stock Exchange); Australian exchanges, for example, Australia Australian Stock Exchange, Bendigo Stock Exchange, Stock Exchange of Newcastle, Sydney Futures Exchange; Chinese exchanges, such as, China-Commodity Futures Exchange of Hainan (Offline January 2002), Dalian Commodity Exchange, Shanghai Futures Exchange, Shanghai Metal Exchange, Shanghai Stock Exchange, Shenzhen Metal Exchange, Shenzhen Stock Exchange, Tianjin United Futures Exchange, and Zhengzhou Commodity Exchange, Chinese Gold & Silver Exchange Society, Growth Enterprise Market, and Hong Kong Exchanges (Hong Kong Futures Exchange, Stock Exchange of Hong Kong); Japanese exchanges, such as, Central Japan Commodity Exchange (Chubu Commodity Exchange, Nagoya Textile Exchange)), Hiroshima Stock Exchange, Fukuoka Futures Exchange, JASDAQ, Kanmon Commodity Exchange (Offline January 2002), Kansai Commodities Exchange (Osaka Grain Exchange, Osaka Sugar Exchange, Kobe Grain Commodities Exchange, and Kobe Raw Silk Exchange), NASDAQ-Japan, Nagoya Stock Exchange, Osaka Mercantile Exchange (Osaka Textile Exchange, Kobe Rubber Exchange), Osaka Securities Exchange, Tokyo Commodity Exchange, Tokyo Grain Exchange, Tokyo International Financial Futures Exchange, Tokyo Stock Exchange, and Yokohama Commodity Exchange.
[0095] Examples of listed commodities include, but are not limited to, stocks; bonds; futures, such as grain futures, including corn, wheat, barley, and milo; treasury notes; treasury bills; currency; precious metals; derivatives.
[0096] As used herein, the phrase “exchange rate” means the price listed by an exchange for a listed commodity at a particular time.
[0097] As used herein, the term “bid data” means the bid price a buyer is offering to purchase a commodity and, optionally, other relevant information, such as quantity sought, quality, delivery date, and delivery place etc.
[0098] As used herein, the term “sell data” means the sell price a seller is offering to sell a commodity and, optionally, other relevant information, such as quantity for sale, quality, proposed delivery date and place etc. A “sell data parcel” is the sell data associated with a particular seller.
[0099] As used herein, the term “purchase commodity” means any commodity that a buyer wishes to buy.
[0100] As used herein, the term “hedge commodity” means a listed commodity (listed on an exchange) having a current exchange rate with which a buyer wishes to hedge the buy of the purchase commodity.
[0101] Tables 3.1 to 3.4 illustrate an example where a seller (farmer) seeks to sell 10,000 bushels of grain to various buyers (grain elevators). The tables show information that might be displayed on the farmer's interface TABLE 3.1 Grain Seller's Interface At Time 1 Dec. quant. to Buyer No. and net sell Futures buyer's buyer's sell (location) price freight price Price basis bid diff. 10,000 001 (Decatur) $1.80 0.02 $1.82 $2.20 $−0.44 $1.76 $0.06 10,000 002 (Peoria) $1.80 0.03 $1.83 $2.20 $−0.45 $1.75 $0.08 10,000 003 (Faribault) $1.80 0.04 $1.84 $2.20 $−0.46 $1.74 $0.1 10,000 004 (Boise) $1.80 0.01 $1.81 $2.20 $−0.47 $1.73 $0.8
[0102]
TABLE 3.2 Grain Seller's Interface At Time 2 Dec. quant. to Buyer No. and net sell Futures buyer's buyer's sell (location) price freight price Price basis bid diff. 10,000 001 (Decatur) $1.80 0.02 $1.82 $2.22 $−0.44 $1.78 $0.04 10,000 002 (Peoria) $1.80 0.03 $1.83 $2.22 $−0.45 $1.77 $0.06 10,000 003 (Fan bault) $1.80 0.04 $1.84 $2.22 $−0.46 $1.76 $0.08 10,000 004 (Boise) $1.80 0.01 $1.81 $2.22 $−0.47 $1.75 $0.06
[0103]
TABLE 3.3 Grain Seller's Interface At Time 3 Dec. quant. to Buyer No. and net sell Futures buyer's buyer's sell (location) price freight price Price basis bid diff. 10,000 001 (Decatur) $1.80 0.02 $1.82 $2.23 $−0.44 $1.79 $0.03 10,000 002 (Peoria) $1.80 0.03 $1.83 $2.23 $−0.45 $1.78 $0.05 10,000 003 (Faribault) $1.80 0.04 $1.84 $2.23 $−0.46 $1.77 $0.07 10,000 004 (Boise) $1.80 0.01 $1.81 $2.23 $−0.47 $1.74 $0.05
[0104]
TABLE 3.4 Grain Seller's Interface At Time 4 Dec. quant. to Buyer No. and net sell Futures buyer's buyer's sell (location) price freight price Price basis bid diff. 10,000 001 (Decatur) $1.80 0.02 $1.82 $2.26 $−0.44 $1.82 $0.00 10,000 002 (Peoria) $1.80 0.03 $1.83 $2.26 $−0.45 $1.81 $0.02 10,000 003 (Faribault) $1.80 0.04 $1.84 $2.26 $−0.46 $1.80 $0.04 10,000 004 (Boise) $1.80 0.01 $1.81 $2.26 $−0.47 $1.79 $0.03
[0105] In this example, the grain seller waited for the futures price to rise to a level such that when elevator 001 subtracted his basis at time 4 , the bid price and the sell price matched. At time 4 , the bid data conformed to the sell data and both farmer and elevator were notified by e-mail that the farmer was willing to sell and the elevator was willing to buy 10,000 bushels of grain for $1.82/bushel. Simultaneously, buyer 001's bid was automatically withdrawn from the view of other sellers and the buyer 001's hedge transaction was automatically executed.
[0106] Tables 4.1-4.4 below illustrate a specific example of information that might be displayed on grain elevator 001's interface upon posting an offer to buy 10,000 bushels of grain on the platform to be delivered in Decatur in October. The elevator chose December grain futures to calculate his bid price. The platform of the invention automatically and continually updates the elevator's bid price by subtracting his basis from the current futures price listed by the Chicago Board of Trade.
[0107] As a hedge transaction, the elevator instructed the platform to sell a futures contract for 10,000 bushels of grain from a current futures clearing merchant (for a transaction fee of course) at the Chicago Board of Trade's futures price at the time a sale is consummated with a seller. The buyer calculated the basis to include the cost of the transaction fee, storage costs, elevation costs, other operation costs, and his desired profit.
TABLE 4.1 Grain Elevator 001's Interface At Time 1 Seller quantity sell price Dec. Futures Price elevator's basis buyer's bid diff. A 10,000 $1.82 $2.20 $−0.44 $1.76 $0.06 B 10,000 $1.83 $2.20 $−0.44 $1.76 $0.07 C 10,000 $1.84 $2.20 $−0.44 $1.76 $0.08 D 10,000 $1.85 $2.20 $−0.44 $1.76 $0.09
[0108]
TABLE 4.2 Grain Elevator 001's Interface At Time 2 Seller quantity sell price Dec. Futures Price elevator's basis buyer's bid diff. A 10,000 $1.82 $2.22 $−0.44 $1.78 $0.04 B 10,000 $1.83 $222 $−0.44 $1.78 $0.05 C 10,000 $1.84 $2.22 $−0.44 $1.78 $0.06 D 10,000 $1.85 $222 $−0.44 $1.78 $0.07
[0109]
TABLE 4.3 Grain Elevator 001's Interface At Time 3 Seller quantity sell price Dec. Futures Price elevator's basis buyer's bid diff. A 10,000 $1.82 $2.23 $−0.44 $1.79 $0.03 B 10,000 $1.83 $2.23 $−0.44 $1.79 $0.04 C 10,000 $1.84 $2.23 $−0.44 $1.79 $0.05 D 10,000 $1.85 $2.23 $−0.44 $1.79 $0.06
[0110]
TABLE 4.4 Grain Elevator 001's Interface At Time 4 Seller quantity sell price Dec. Futures Price elevator's basis buyer's bid diff. A 10,000 $1.82 $2.24 $−0.44 $1.82 $0.00 (sold) B 10,000 $1.83 $2.24 $−0.44 $1.82 $0.01 C 10,000 $1.84 $2.24 $−0.44 $1.82 $0.02 D 10,000 $1.85 $2.24 $−0.44 $1.82 $0.03
[0111] At time 4, the farmer A's sell data conformed to the elevator 001's bid data. Farmer A and elevator 001 were both notified of the conformance by e-mail that farmer A was willing to sell 10,000 bushels of grain for $1.82/bushel to elevator 001 and deliver the grain to elevator 001 in Decatur in October. Simultaneously, the elevator 001's bid was automatically withdrawn from the view of farmers C, D, and E. Also simultaneously, the elevator 001's hedge was automatically executed to sell a futures contract for 10,000 bushels of grain for $2.24/bushel electronically through a current futures clearing merchant. The net effect was that elevator 001 purchased 10,000 bushels of grain for 1.82/bushel from farmer “A” for a net cost of $18,200 and sold 10,000 bushels of grain at $2.25/bushel (i.e., the hedge futures sell contract) for a gross of $22,500. The difference reflects the basis of $−0.44 or $4,300, which accounts for the elevator's profits and costs.
[0112] After purchase of the grain, the grain elevator will likely sell the grain at the local cash price, realize the profit built into his basis, and buy back his futures contract to sell 10,000 bushels of grain at the current futures price. Optimally, the futures price should track the local cash price. Thus, if a sudden fall in the local cash price for grain at the time the elevator sought to sell the grain, he would be hedged by his futures contract.
[0113] From the above description and examples, it is clear that in one embodiment, the invention is directed to a method for purchasing a commodity comprising:
[0114] (a) providing bid data for the commodity on a network platform, the bid data provided by a buyer;
[0115] (b) providing one or more sell data parcels for the commodity on the network platform, each sell data parcel corresponding to a particular seller;
[0116] (c) providing hedge transaction information respecting a listed hedge commodity, the hedge transaction provided by the buyer;
[0117] (d) monitoring the bid data and the one or more sell data parcels;
[0118] (e) automatically identifying a conforming sell data parcel, which conforms to the bid data; and
[0119] (f) automatically executing the buyer's hedge transaction.
[0120] In another embodiment, the invention relates to a system for purchasing a commodity comprising:
[0121] (i) a memory storage device;
[0122] (ii) a processor connected to the storage device;
[0123] (iii) a program for controlling the processor; wherein the memory storage device and the processor are operative with the program to:
[0124] (a) provide bid data for the commodity on a network platform, the bid data provided by a buyer;
[0125] (b) provide one or more sell data parcels for the commodity on the network platform, each sell data parcel corresponding to a particular seller;
[0126] (c) provide hedge transaction information respecting a listed hedge commodity, the hedge transaction provided by the buyer;
[0127] (d) monitor the bid data and the one or more sell data parcels;
[0128] (e) automatically identify a conforming sell data parcel, which conforms to the bid data; and
[0129] (f) automatically execute the buyer's hedge transaction.
[0130] In still another embodiment, the invention is directed to a computer readable medium encoded with a computer program that causes a system comprising a memory storage device and a processor to perform the steps of:
[0131] (a) providing bid data for the commodity on a network platform, the bid data provided by a buyer;
[0132] (b) providing one or more sell data parcels for the commodity on the network platform, each sell data parcel corresponding to a particular seller;
[0133] (c) providing hedge transaction information respecting a listed hedge commodity, the hedge transaction provided by the buyer;
[0134] (d) monitoring the bid data and the one or more sell data parcels;
[0135] (e) automatically identifying a conforming sell data parcel, which conforms to the bid data; and
[0136] (f) automatically executing the buyer's hedge transaction.
[0137] Although the present invention has been described in considerable detail with reference to certain preferred embodiments, versions, and Examples other versions and embodiments are possible. Therefore, the spirit and scope of the appended claims should not be limited to the description of the versions and embodiments expressly disclosed herein.