Commodity Production: Farming and Selling

Commodity Production

• Agri producers have different sizes of land and can divide it amongst crops with varying growth needs, like citrus, avocados, and cane.
• Crop types vary in hardiness; some are fragile, while others withstand diverse weather.
• Understanding rainfall patterns is vital.
• A crop cycle includes preparation, planting, and harvesting.
• Employee levels change seasonally with machine operators and supervisory staff involved.
• Machinery investment depends on labor costs and skilled labor availability.

The Role of Packing Agents

• They sort, grade, and package produce to meet quality and market standards.
• Packing agents also preserve freshness, prevent damage during transport, and adhere to regulations.

Selling Agencies

• They help producers get optimal crop prices.
• They understand market demand, trends, and pricing.
• Selling agencies negotiate for buyers, coordinates logistics, drafts sales contracts, and ensures standards are met to maintain the producer's reputation.
• The selling agencies draft, review, and manage the sales contracts to ensure they are in line with the quality standards and market requirements

Integration in the Supply Chain

• Higher integration leads to more cost control.
• Integration requires large investments in processing and transport facilities.
• Many agricultural crops involve long-term capital commitment with no immediate return.
• Switching crops mid-growth is impractical due to varying maturity times.
• Crop prices rely on demand and supply, considering consumer preferences.
• Soil quality is extremely important.

Key Factors for Survival

• Efficiency and low costs are vital.
• Matching crops to soil quality and weather is important.
• Different crops need various soil types, nutrients, pH, and moisture levels.
• Soil's ability to retain moisture, drain water, and sustain fertility is affected by local climate and weather.
• Well-draining soil suits frequent rain, while moisture-retentive soils are better for drier conditions.

Farming Logistics

• Farmers can lease land with contracts involving the government, individuals, shared profits, or support systems.
• Crop diversification depends on the farmer's risk strategy.
• Factors like energy, diesel, electricity, and labor contribute significantly to costs.
• Investments in research on monoculture and soil health are vital.
• Drones, solar energy, and battery technology are important for farming and solar powered tractors.
• Genetically modified (GM) crops offer pest resistance and can be good in terms of resistance towards towards pests, sicknesses and diseases.

Genetically Modified Crops

• The gene for many genetically modified crops is slowly lost as the generations progress and new seeds would have to be bought again making this option less popular for farmers

Consumer Preferences

• They want defect-free produce, leading to cosmetic treatments that sometimes cause rejection for export.
• Understanding markets and finance, along with high emotional intelligence, is vital for farmers.
• Some countries possess a comparative advantage in specific crops due to soil and climate.
• Importing from specialized countries is more economical than using greenhouses.
• Traders are responsible for transporting products from surplus to deficit areas.

Global Trade

• Countries export surplus production if there is a potential profit.
• Traders bear risks like freight rates, insurance, wages, and counterparty default.

Commodity Transportation

• Transport speed influences the selling price as securing a higher price is possible for delivering products first.
• Limiting business with single companies or countries mitigates default risk.
• Regulations like import taxes, bans, quotas, licenses, and quality restrictions affect trade.
• Information is widely available and traders can obtain needed info worldwide, limiting the importance of office location.
• Governments are less involved in commodity trading, which reduces bribery and corruption potential.

Market Analysis for Traders

• Market analysis is now essential for predicting shortages and surpluses through examining demand and supply factors.
• The world market is not homogeneous and has many varying factors that affect the cost.
• Thin margins require traders to save or earn money through efficient logistics, storage, ports, and processing.

Kuban Region of Russia

• The Kuban region is known for its fertile "Black Earth," ideal for wheat, barley, and sunflower seeds.
• Farming can be profitable as costs are low and quality is excellent.
• Extreme climates with hot summers and cold winters are challenging for weather-sensitive crops.
• Smaller trading companies can specialize but face competition from larger firms like Glencore.

Russia's Wheat Industry

• Russia was the largest wheat exporter in 2016.
• Traders can trade flat price or hedge with derivatives like futures or options (traded on Formalised Exchanges.
• Hedging mitigates risks like exchange rate fluctuations.

Futures Exchanges

• Different futures exchanges vary in liquidity, products, and commodity quality.
• Commodity futures are often standardized and wheat quality must meet specific future contract standards for delivery.
• Futures contracts used for hedging must align with the quality of wheat, delivery dates, and contract sizes.

Basis

• Basis prices matter when the quality of hedging a cetain quality of wheat matches to the most correlated contract prices
• Basis prices also matter in trading, the difference between local cash price and a relevant futures contract price.
• A narrow or positive basis indicates high local cash prices due to high demand.
• A negative basis indicates low local cash prices due to low demand.
• Traders profit from price differences between two related commodities or markets, focusing on quality, origin, timing, or logistics, instead of trading only the single commodity.

Basis: Spot Price vs. Future's Price

• Basis is valuable for traders, especially if they are long or short the basis.
• If a trader is long, gains occur when the basis increases.
• Being long suggests holding spot market stock and shorting the futures market.
• If a trader is short, gains are made when the basis decreases.
• How much the basis changes from the start matters the most.
• The basis summarizes if a trader gained or lost money calculated from the spot and futures prices.
• Traders typically avoid delivering against futures due to complexities.

Real World Hedging

• While it reduces risk, it is never perfect, leaving some risk reflected in the basis.
• Ideal hedging involves spot prices changing the same as futures prices for a risk-free transaction.
• To minimize basis risk, match futures to the commodity as closely as possible in terms of quality to reduce risk
• Basis is only appropriate when the hedger does not intend to deliver on the futures.
• Aiming to offset a position offsets the hedge, dealing with the uncertainty the future has to give.
• Trading firms, not individual investors, do the bulk of commodity investment.

Free-On-Board (FOB) vs. Cost, Insurance, Freight (CIF)

• Free-On-Board involves buying the commodity once loaded on a ship and then the supplier's duties end there.
• When converting to Cost, Insurance, Freight sales, takes responsibility for shipping, insuring, and charging clients.
• Buying or selling commodities requires advance positions, affected by risk appetite and price risks.

Differentials Trading

• Traders profit from changes in relative price differences in related commodities or markets, not a single commodity outright.
• Traders aren't usually big speculators as their money comes from moving commodities from surplus to deficit locations
• An important rule is to know industry laws and regulations, you have to familiarize yourself with the laws.
• Physical traders encounter issues when speculative investment funds distort prices.

Margin Calls

• The prolonged disconnect between physicals and future prices results in traders being forced out of their positions.
• Companies are hedging against futures and spot markets face basis risk; an unfavorable disconnect results in increased margin calls.
• These are essentially the bank's deposit; more margin is needed as the risk of counterparty default increases. When the prolonged is not in the trader's favor
• Essentially it is is a bank's deposit but the losses mount, then more is needed from thr risk as the counterparty defaults to squeeze assets.

Financing Difficulties

• Physical stock of commodities as collateral can cause financiers reduce the value they allocate to the collateral.
• Lenders may thus reduce available credit or demand higher interest rates.
• Market sentiment alone makes buyers, suppliers, and banks more risk-averse causing buyers and sellers to limit buying and can squeeze trade liquidity

The Physical Trader

• The traders move towards owning assets and stay globally present at all origin's and destinations.
• A successful trader must now make substantial profits from logistical assets, they are diligent, communicative, and a good listener.
• A lot information is obtained from the others.
• It takes years to build a good reputation which is essential for trust and reliability.

Commodity Definition

• The definition is storing and/or transporting and/or processing a commodity from when, where or in what form it is not needed to when, where or in what form it is needed!
• A trader not only moves commodities but also stores and processes them from a less wanted to more desired form
• Trading focuses on price differentials, hedging to make money on spreads.

Selling Commodities

• The traders sell commodities locking profits.
• It necessitates dealing with differentials around interest rates or transport charges before shipment.
• Variables can affect the interest rates.
• Having variable interest rates or credit lines helps reduce costs.
• Geographic risks affect transport costs with impact price differences due to what is responsible basis risk differences

Farmers

• Some farmers sell goods in advance to avoid price risks and secure certain revenue.
• The sales happen before harvest and the accuracy of the price estimates affects the profitability.
• Adverse weather can cause lower yields and so, producers are to honor sales contract at the market prices but sometimes they cant.
• Selling what you don't have is less risky than not selling at all!

Traders

• Trading something you don't have with people who don't want it, helping to plan transforming it for consumers
• Deliver contracts, and pay penalties in case contracts of sales and delivery contracts are broken, failure to do so can result in a need to pump out with extra money.
• Avoid buying if you don't have buyers to avoid incurring additional costs.

Contracts

• Always would face price risks or basis risks ( if you hedge your positions),
• Important for the distinction between a broker and a trader, don't can face price risks or basis risks.
• Broker is lubrication of the market with negotiating but also contract terms in win-win situations always.

Brokers

• It is not an agent but it will work for both sides and and the agent on 1 side only.
• A company which trades in physical commodities (Trade House).
• Non-Commercials are important assuming the risks commercials take.
• Thus they are integral for taking the risk away from those commercials.

What to know

• The profile of the buyers and sellers.
• Quality and sustainability profile.
• Major associations (Interests and terms, aims.)
• An efficiant markets tests the changes to supply and depend.
• Always consider the weather conditions.
• Its imprtant to try and consider what is self-interest helps keeping the price low.
• Depend what commodities on the chain due to precerence or taste.
• Understand that The weather the supplies of what commidittoes as its one of the most deciders.
• Affect prices but with relation or ability that commodity need to subsitite.

Impact

• The weather has plenty uncertanity when the prices because or when to begin the product on what to decide.

Lag Time

• Its a shortage from a lag time to becoming a surplus issue.
• Deviation helps the correct overreact or return and to see if the farmer has to keep to produce.
• Sometimes consider if would rather see prices produce due to intervention due to ambiguity or who to pernalize.
• CADO/COAS

CAO/ CAD

• Helps if they can interfere even for dipolamcy.

Trade

• Help mitifate and help to improvise the risk

• Credit letters and even structure all the way for the trade

• Must the the belief for the right touch for the team with there touches.

Features/ Options

• Futures are straght and less expensive, that can go up or down.
• It can hedge and allow, but in favoriable changes
• The features and options the traders can lose due can they can get can options or not as they sell
• There will be no margin values.
• Trade/ Points
• Some cases are on law when the demands supplies are affected.

Each

• The points need that points that affect the distrotions
• What number the prices that can see that happen at any time with certain points
• It means that it has the prices from it.
• Subides needs to be the help is due it.
• Its about there all three and when to implement.

Contract

• When to consider the help when it comes that help the contract due to the market has certain times for the help.

Spread

The market must consider and the factor certain points.

Offer

The future can cause. What to win where you had to lose but the best when all is to be considered.

To avoid

Due to what would have happen for that day or day with the help in mind that one must consider. To help on the contract as they would want to consider as for whats in hand as for all times.

To all

• When will trade the future as they like due to they can swap or do they help what is going to happen
• What the factor as to have for the help always being in hand for it from that point
• This does help consider
• As its needs to that spot on the markets.
• In this as what is call to make out whats to trade
• Not that that helps show what has can affect whats is to cause the prices in prices and that is all folks

Some to consider

But who will use all that, but here can see to consider whats help to take out that, and why it happen in point

• Due to why prices can see an issue can now it start whats to do.
• To why it can take for the help whats need due to volatility and factor for trade
• Here need to do as the value and the time whats due cause you help it will be less to offer thats said.

Delta

Its a way where it is on how it change when factor is had due to what that time for where to go. What one to play but as you would have to limit each other here. That most can cause and limited when is to consider due to what those days will show or not. Or you can solve. What one can see

• These is all on how to limit or play because you are to have them.

• As to trade they are and how to to help or not depending

• To help solve the contract so long as you have all you need to do or know on what each can trade with and see at hand

• In the end they make a swap which to do with the to know what for a factor

Its what those all has where to consider thats all but what one is there to trade for what you want There it, which it for when thats set can to take or trade each out for each and every and what to do. How to swap but you can't unless had but to know how they do the price when trading to one for the trade

In and out

Why to what they trade here.

• Because they need the fact but what when, prices. Always.

• This all needs to show for the factor and help in do to consider and each one what they need and there whats trade for

• They is one help on see whats has or factor if helps on not at times where is most have and it set whats to the time when, now what happen on whats to do.

• Where to that where is where they will always be ready to what on what to do here.

Points

• Liquidtily

• Hedges

• Time on what that mean on where.

• Now. This just as trade helps do as they help each together as with always for the better helps of course

• No choice they can make where get to work .

Commodity Production

• Agri producers have different sizes of land to farm the agriculture on, on top of this they can also divide the land amongst crops with different growth requirements, like citrus, avocados, and cane.

  • Different types of crops have different levels of hardiness, some are more fragile whilst the others are more robust, they can withstand varying severity of weather.
  • Thus it would make sense for us to recognize the weather patterns, such as how much rainfall there is etc.

• A crop cycle is one that goes from preparation, planting, harvesting

• Employee levels can vary from time to time depending on the season, consisting of machine operators, and supervisory staff

• The decision to invest in machinery is very much dependent on the cost of labour and the availability of skilled labour

Producers Depend on Selling Agencies

• The selling agencies also draft, review, manage sales contracts
• Also work with packing agents to ensure quality standards and market requirements are met to maintain the reputation of the producer
• With integration in the supply chain, the more control they have over the costs, but massive investments have to be made in processing and transport facilities
• Agricultural Crops have a long commitment and tying up of capital with no return during those periods, this implies that it would be impractical to switch the crops they are growing mid way through the growing process. ( different crops have different growing periods, some take longer to mature than the others )
• Prices are a function of demand and supply, its also important to consider the demand and the ability of the consumer to change their tastes and preferences, and the impact it would have on the crop’s price.
• To survive, its all about matching efficiency and low costs, its also about matching the crop to the soil quality whilst matching the soil quality to the weather.
  • Different crops have varying requirements for soil types, nutrient levels, pH and moisture levels
  • The soil’s ability to retain moisture, drain water, sustain fertility is heavily influenced by local climate and weather patterns ( if it rains frequently, well-draining soil is best, if it does not , soils with good moisture retention are best )
• The extent to which the farmer diversifies the crops they grow depend very much on their own strategy, much like we choose the number of companies to invest in based on our own risk appetites.
• Farmers also have to deal with the cost of energy, diesel and electricity which account for a significant proportion of their costs and labour is also usually another significant cost factor.
• Farmers have to put money into research and some of the issues are around monoculture and soil health.
• There are various technologies that are significant in the farming sector and these inculde, drones, solar energy and battery technology. Such as solar powered tractors etc.

Russia's Resources for Kuban Regions

• The caveat is that climates in Russia can be very extreme, with hot summers and cold winters this can be detrimental for crops which are weather sensitive.
• Important to note that russia trades a lot more of these products from the land and these products helped make Russia to be. such as weath and being the largest exporter of wheat in in 2016
• There is the potential to either trade flat price, or to hedge their exposures with derivative contracts such as futures or options that are traded on Formalised Exchanges.
• There is also hedging and to keep in mind what this can apply to to different types of ricks that that the trader might have, such as exchange rate fluctuations and any further risks to be had for this.

Futures for Commodities

• With hedging, when hedging a certain quality of wheat, the futures used has to correspond to the most correlated or suitable contract.
• It’s also important there, delivery dates, contract sizes all have to align with the harvest
  • Narrow or positive basis could indicate that local cash prices are high due to high demand and/or low supply conditions
  • On the other hand, negative basis could indicate that local cash prices are low due to low demand and/or high supply.

BASIS = Spot Price – Future’s Price

• Traders don’t usually deliver against futures as it simply poses too many complexities such as logistical challenges, challenges to meet the quality and quantity requirements etc.

In the real world hedging

• If he does not intend to deliver on the future and simply wants to offset his position by taking on an offsetting position to close the hedge, then he would have to deal with the uncertainty brought about by the fact that futures prices and spot prices do not change to the same extent.
• Buyers buy the commodity through Free-On-Board ( FOB ), which means that they buy the commodity once its loaded on a ship and the supplier’s responsibilities end there.
• If converted to Cost, Insurance, Freight ( CIF ) sales for clients, this means that they take on the responsibility for shipping, insuring the product until it reaches the buyer ( they take on more risk and charge the client for this )
• Differentials trading is when the trader aims to make profit from changes in the relative price differences between the 2 related commodities or markets, in this case instead of trading a single commodity outright, they profit from varying factors like quality, geographical origin, delivery timing, or logistics.
• Physical traders are moving towards owning assets while maintaining a global presence at origin and destination, many companies now make a substantial amount of their profits from assets like logistical and processing assets and even land.

What the Commodity Trades Definition Entails:

• STORING and/or TRANSPORTING and/or PROCESSING a commodity from When, Where or in What form it is not needed to When, Where or in What form it is needed!
• While also understanding that futures do not require an upfront premium making them cheaper to enter compared to options, the primary costs are transaction fees and margin requirements
• If the contract in forwards is going to affect whether it will need where to be traded or not. there are points to the warehouses to consider. But its all has to be good.
• How each have trading to cause where its is whats on do for whats will there all to come back as a team
• The relationship with traders and where to solve what and do is when you can't to keep what for a contract or any type of way to make a help.

Markets Have To Have and Know In Commodities:

• There for them but how it will cause for when due.
• This is what those trade help there always whats help the team on that part. Always help with what to say where or say. This where all one can make a deal but to not to change.

Due to what must get what they got

• Thats factor is that they cant always make they must have what to get. This is why there no help.

• The reason, there no help do as they do their own job. </