Today’s global agriculture commodities markets are going through some major changes: increasing merger, acquisition, and investment activity, more complex regulatory requirements, and growing uncertainty in supply and demand. How are ags companies managing the complexity and volatility that has become the norm?
Let’s take a look at 4 of the major trends affecting the agri commodities trading market today:
1) A Flow of Capital
There has been a continuing increase in private equity investments in agricultural efficiency, farmland, infrastructure, and CTRM software technology. There is also plenty of capital available to invest in the markets from top commodities companies such as Vitol, Glencore, Cargill, and Trafigura, which are all over $100B conglomerates spanning multiple commodities and industries.
Many companies today have a higher interest in achieving "superbroad" capabilities by becoming more vertically integrated and having a hand in every stage in the supply chain. This is leading to a lot of mergers and acquisitions among large agri-traders, for example Cargill and Copersucar JV merging to form Alvean, the largest sugar trading venture in the world, and Mecuria buying JPMorgan’s physical commodities business.
2) Changing Financing Sources
Major commodity traders are now able to access the credit market, with investors more willing to put money into these large companies. Mercuria and Freepoint Commodities each have new credit facilities over $1 Billion USD. Glencore, Vitol, Trafigura, and Mercuria are all stepping in to fill the gap in trade financing by extending credit lines to their suppliers, as well as micro-lending to farmers and producers.
3) Relentless International Regulation
Tougher regulations have forced major US and European banks to exit commodities markets completely, and large traders are expanding their reach in the commodities markets as banks play a reduced role. New regulations such as EMIR and Dodd-Frank have an impact on all market participants, not just traders. End users also have to comply with reporting requirements, and companies supplying raw materials and ingredients to the food & beverage industry need the ability to document and trace products back to the source.
4) Uncertain Supply & Demand
High crop yields forecasted in the US grains & oilseeds market means a surplus supply and low prices. Even with prices trending downward, agriculture companies still have to be prepared to manage geopolitical risk from economic uncertainty in China, emerging markets, and Europe.
Each of these trends have major implications for commodities companies. Agricultural companies need to be able to analyze not only their internal data, but also external, market data to make better, risk aware decisions. They need to stay up-to-date with financial activity in the market as well as economic trends affecting supply and demand of raw materials and creating volatile prices, all while remaining in compliance with strict government regulations. (Read more about the challenges facing commodities companies in "The Perfect Storm in the Next-Gen CTRM Software Market.")
Eka's advanced CTRM software platform allows companies to manage complex scheduling and logistics, proactively mitigate risk, and manage commodity transactions from end-to-end throughout the entire value chain. It also provides predictive and prescriptive analytics, enabling agriculture companies to make better, faster, smarter decisions. The advanced analysis and reporting capabilities give commodity market participants the competitive advantage they need to remain profitable during this period of change.
