Food is perhaps the greatest trade imbalance of our lifetime.

Food is perhaps the greatest structural trade imbalance of our lifetime.

That more than 80% of the world population live in MEDA and ASIA predicates that a constant trade flow must exist to balance this demand( in prices).

Why must the Grain flow ?

abcds-of-trading

An excerpt from Jacques, S and Simondet, A. (2016)“Traders or Commodity Finance Banks” [1]:

“The world is not created equal in resources, like water. We just need to think about how much water matters for food for example: 1 kilogram of bread requires 1,300 liters of freshwater as highlighted by Hoekstra (2008).

During the drought of 2012 and more recently during June 2015, severe rainfalls hampered the U.S. Midwest, or in other words, the U.S. Midwest had a surplus of moisture and water.

Jacques S. (2015) observed that during each of these two occasions, grain market price signals have jumped with the anticipated crop yield and quality losses inversely impacted global prices and adversely impacted food security. [2]

Cargill, through its global interconnection with the financial markets and its global supply chain, has been able to receive and transmit the price signals to economic agents and act in an effective way to balance the market in prices/quantities or in their water resources equivalent. Jacques, S. (2015)*

Commodity trading entities can tackle issues such as food security and climate change because they serve as a belt between producers on the one hand and consumers and investors on the other, whose interests and exposures offset each other but do not perfectly match.

Global food imbalances are mirrored and priced into the logistics.

Processing capacity and food supply offset each other but in net terms do not perfectly match.

“Spatial trades”, can also favor the appearance of quite unusual trades between continents. 

ABCDs buy grain, hedge it and look for opportunities to sell it in the time-space. (Jacques, S and Simondet 2016).

Bunge is an integral part of Agribusinesses the and food markets on six continents.[3]

The cheapest and most efficient chain wins the ports, nominates the vessels and makes the market in a region.

Grain freight movements create the market for the farmers. By implicitly facilitating the vessel transportation, G3 is also market-maker for other traders.

The conditions favoring the appearance of a space trade in grains and dry-freight at a multi decadelow have led to an unexpected trans-atlantic trade.

The space doesn’t match geo-spatial supply and the soybean refining capacity doesn’t correspond to the requirement of the local market. You can immediately see why the commodity needs to flow.

Bunge North America “swaps” the soybeans for soymeal with Bunge Europe to be re-imported as backhaul (in space) and/or later in the year (in time).

trans-atlantic-soymeal-for-soybeans-swap

Trans-Atlantic Soymeal for Soybeans swap and triangulation of supramax ECC/NWE.

Price is the other great equalizer of the supply  when grain  won’t or can’t flow.

Grain is life and grain must flow.

CREDITS:

[1] Jacques, S and Simondet, A. (2016)“Traders or Commodity Finance Banks”, Navigating the commodities markets with Freight and Spreads , September 9, 2016.

[2] Jacques, S. (2015, July 31). Froth in the Corn. retrieved from https://jacquessimon506.wordpress.com/2015/07/31/12650/

[3] Jacques, S. (2016) Trans-atlantic Opportunities can appear in unexpected ways.

© 2017 Navigating the commodity markets with Freight and Spreads

For impartial unprejudiced advices with an assistance on trading and the operational issues affecting the industry translated into market terms.

Simon Jacques +1-226-348-5610

Commodity trading and finance.

Advising the producer, processor and end-user in North America.

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