Forward Contract Process

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Pre-Harvest Forward Contracts  

What is a Forward Contract?  

A Forward Contract is a negotiated contractual obligation used for protecting your business against future adverse price and supply changes, whilst still allowing you to benefit from favourable movements. This type of contract may be useful for producers looking to protect their revenue against declining prices and oversupply, or for buyers (producers, importers, bottlers and retailers) to protect their costs against increasing prices or limited supply.  

Two types of Forward Contracts are available:

1.      Forward Buy: issued by a producer, inviting buyers to purchase the contract in order to secure a future sale

2.       Forward Sell: issued by a buyer, inviting producers to purchase the contract in order to secure future supply  

The VINEX member offering the Forward is called the Contract Issuer and the purchaser is called the Contract Holder.  

Contracts are called Forward, because they are the subject of purchase and supply at a forward point in time, called the Execution Date when supply of the next vintage becomes available.  On the Execution Date, the parties are legally bound to exercise their responsibilities at the Forward price and terms in the contract.  

Why a VINEX Forward Contract?  

Through the VINEX trading platform buyers and sellers can negotiate securely and efficiently whilst retaining their anonymity to ensure a fair and unbiased negotiation process. Agreement can be reached on price, volume and supply terms by the Offer and Counter-Offer method. On acceptance, the trade is verified and approved by VINEX Clearing & Settlement prior to issue.  The VINEX sampling process allows for current ‘stylistic’ samples and technical specifications to be exchanged and accepted by the Buyer prior to completing the contract negotiations.  

When can I negotiate a VINEX Forward Contract?  

Pre-Harvest Forwards can be listed and negotiated on the Exchange within a 150 day period, between the following dates, prior to harvest commencing.  

Northern Hemisphere supply: Open 1 April 00:00 UK time   Close 31 August 24:00 UK time

Southern Hemisphere supply: Open 1 October 00:00 UK time  Close 28 February 24:00 UK time                                                                                                    

Contracts not negotiated by the closing time expire.  

What factors should I consider before listing a Contract Forward?  

If you’re a Buyer, you should consider the potential impacts of the following:

• Price Movements, the volatility of past pricing and the probability of it increasing
• Supply Security, any recent impacts or projected changes to potential supply
• Inventory Levels, your current supply levels, forecast rate of sale and existing supply agreements
• Currency Changes (if applicable), the overall strength or weakness in your buying currency    

Other factors should also be considered, and can be found in the VINEX Forward Contract Calculator.    

If you’re a Seller, you should consider the potential impacts of the following:

• Supply Security, any recent impacts or projected changes to the availability of grapes
• Grape Pricing, the probable pricing for next vintage grapes
• Production Capacity, your available production capacity and incremental cost of increasing production
• Inventory Levels, your current stock on hand, forecast rate of sale and existing sales agreements
• Market Environment, competitor production and sales strategies, and the ease of product or supplier substitution
• Currency Changes (if applicable), the overall strength or weakness in your selling currency    

Other factors should also be considered, and can be found in the VINEX Forward Contract Calculator.    

Quick facts  

Premium                   

Min. Contract Volume:      Wine & Juice 20,000L    Grape Juice Concentrate 250Kg  

Delivery

Wines described in a Forward must be purchased and supplied within 12 months from the next vintage becoming available to the market. There are prescribed dates for wines from the Southern and Northern hemispheres.  

Market Price Declines ≥ 20%

If at the time of Execution the Forward price is ≥ 20% above the market price and the Contract Issuer offers the lower indicative market price, as the Contract Holder you are bound to execute the contract.  

Amended/Terminated

Contracts can only be amended or cancelled with the approval of both parties (at any time), or if the Contract Issuer offers to exercise the Forward for a cash consideration for the difference in value between the Forward price and current market price, and the Contract Holder agrees.  

Benefits  

Sale and Supply Protection: As the Contract Issuer you lock-in either a future sale or supply, and avoid the loss of a purchase or unfavourable impacts that may interrupt supply of the next vintage.  

Price Protection: As the Contract Issuer (buyer) you receive protection against paying a higher future price. As the Contract Issuer (supplier) you receive a price either slightly above the forward price (< 20%) or if the forward price is ≥ 20% lower, then you will receive the market price.  

Supplier Protection: If at the time of execution the Forward price is ≥ 20% above the indicative current market price, the Contract Issuer has the right to offer the lower indicative market price. If offered, the Contract Holder is bound to execute the contract at the lower market price. This protects the supplier by ensuring a sale occurs for the wine produced, even if only at the current indicative market price.  

Credit Protection: If credit payment terms form part of the Forward agreement, the supplier is protected and must provide acceptance of the terms upon the buyer’s identity and credit worthiness being released by VINEX.  

Additional Volume: All Forwards are for the supply of a minimum volume of wine. However, when the contracted is executed the supplier may agree to additional volume (or an option for additional wine), if requested by the buyer.   

Flexibility: You determine the minimum volume and type of wine or grape derived product you want to secure, the terms of supply including the currency and the price protection level.  

Sample Approval: No Forward is finalised until a current vintage ‘stylistic’ sample and specification declaration is accepted by the buyer, and prior to execution a new vintage ‘final’ sample and declaration is accepted.  

Efficiency and Control: With anonymity, you can initiate several Forward negotiations, track all details and agreements from your central VINEX Dashboard with confidence.

Examples Only  

Producer offering a Pre-Harvest Forward Buy Contract

ID 032159 Spain 2022 Tempranillo (D) Min. 240,000L @ FOB EUR 3.50/Hg, despatch from 1 January 2023

This Forward listing on the Exchange invites a wine buyer to negotiate and accept a contractual obligation (becoming the Contract Holder) to purchase a minimum of 240,000L for draw-down over a 12 month period from the Execution Date (1 January 2023).  

The Contract Holder (buyer) must have accepted (or waived their right to accept) a ‘stylistic’ current vintage wine sample and specification declaration from the negotiating supplier.  

30 days prior to the Execution Date, VINEX Clearing & Settlement will arrange for the new 2022 wine sample and declaration to be provided by the supplier to the Contract Holder (buyer) for acceptance.

Importer offering a Pre-Harvest Forward Sell Contract

ID 012015 South Africa 2023 Colombard Chardonnay (D) Min. 480,000 Ltrs @ FOB ZAR 8.00/L, despatch from 1 July 2023

This Forward listing on the Exchange invites a wine supplier to negotiate and accept a contractual obligation (becoming the Contract Holder) to supply a minimum of 480,000L over a 12 month period from the Execution Date (1 July 2023).  

The Contract Issuer (buyer) must have accepted (or waived their right to accept) a ‘stylistic’ current vintage wine sample and specification declaration from the negotiating purchaser.  

30 days prior to the Execution Date, VINEX Clearing & Settlement will arrange for the new 2023 wine sample and declaration to be provided by the supplier to the Contract Issuer (buyer) for acceptance.

What are the Risks?  

Potential Loss

- As the Contract Holder (buyer) of a Forward Buy you must accept that if the market price falls below the Forward price at the time of Execution (< 20%) you are bound to execute the Forward and purchase the wine as agreed, ie. you accept a capped potential loss to secure supply.

- As the Contract Holder (supplier) of a Forward Sell you must accept that if the market price rises above the Forward price at the time of Execution you are bound to execute the Forward and supply the wine as agreed, ie. you accept a potential loss to secure a forward sale.

Forward Premium

- A premium must be paid by the Contract Holder to VINEX on acceptance of the Forward for providing the trading facility and managing the execution process. If the contract is not executed for any reason, the Contract Holder foregoes the Premium paid.  

How do I determine if a Forward is beneficial?  

VINEX provides a comprehensive Forward Contract Calculator to assist both buyers and sellers to work through a process of determining whether or not market factors support the issue or acceptance of a Pre-Harvest Forward Contract.