Behind closed doors: commodity traders

Behind closed doors: commodity traders
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Foreign Consumption

Foreign consumption of raw materials was significant at the beginning of the 20th century. The emergence of new economic powers commodity like China and India in recent times has triggered a surge in demand. This scramble for commodities has driven prices to unprecedented levels, leading to hunger riots in developing countries in 2008.

However, China’s voracious appetite alone cannot explain the soaring prices. Some responsibility must be attributed to the markets themselves. There are instances where speculators artificially manipulate markets by buying up oil, creating a perception of a shortage, and consequently driving prices higher.

The speculators in question, as mentioned by Barack Obama, are the leading players in the commodities markets – the commodities traders. These individuals or companies buy and ship merchandise with the intention of reselling it at a higher price. These traders operate within a secretive world, and the first rule of their corporation is secrecy. Geneva has become the hub of their activities, hosting around 400 trading companies, including major players like Vitol and the ABCD agribusiness group.

Oil Trader

Vitol, the world’s leading oil trader, boasts a turnover of $300 billion. The ABCD group, comprising four major agribusiness companies, controls 80% of the world’s grain market. Another powerful and secretive player is the Glencore group, based in the discreet Canton of Zug, with a turnover exceeding $250 billion.

The commodities traders, driven by a hatred for risk, operate in a field where taking risks is inherent. Their goal is not to rob people but to take calculated risks that, if successful, result in profits. They identify themselves as merchants and market makers.

Despite their significant impact on global markets, these multinational corporations remain notoriously camera-shy and secretive. Louis Dreyfus Commodities is one of the few that, through its managing director, explained its choice to remain silent, citing a desire to move beyond the usual moralizing themes in the debate about rich and poor, multinationals, and small local farmers.

 

Commodities Traders

It’s fascinating – one year you have a huge crop, the next year a very small crop, compensated by a massive crop in another country or a smaller crop elsewhere. All these numbers are really interesting to play with. I travel quite a bit, at least once a month, to a producing country to see my clients, talk to them, try to do some business, and see how it’s going. I’ve been doing it for the past 25 years.

Commodities traders, above all, are globetrotters. Business isn’t just done over the phone or by computer. On a business trip to Taiwan, a trader is shown negotiating a deal for cotton with local spinners in the south of the island.

Selling is only part of the job; traders also need to know how to buy. Being a trader means being prepared. To be prepared, commodities traders analyze and interpret information from all over the world. They need to feel the market, anticipate supply and demand, and understand the relationships between them. Traders follow harvests carefully and need to check the accuracy of the information they receive.

Finance Funds

Traders often take chances when buying raw materials even before they’re produced. A year before the harvest, cotton has already been negotiated. The financing for these transactions often involves banks. However, traders have learned to diversify and use trade finance funds due to banks’ erratic relationships and reluctance to take risks.

Speculation is an integral part of trading. Traders take positions, buy low, and sell high to make a profit. The history of trading is intertwined with the history of speculation. Examples include Anthony Ward, known as “chocolate finger,” considered the world’s greatest trader in cocoa, who made headlines in 2010 by buying almost all the cocoa stocks on the Ivory Coast before civil war broke out.

The Chicago Board of Trade is a legendary center of the agricultural commodities market. Paper traders, dealing in futures, play a significant role in managing risk. Futures are a form of insurance against price fluctuations. These derivative products help traders hedge against risks that insurance companies often refuse to cover.

In conclusion, the world of commodities trading is complex, involving intricate negotiations, global travel, risk management, and speculation. Traders must navigate a dynamic landscape of supply and demand, harvests, and market fluctuations, all while maintaining relationships with clients, managing financing, and adapting to changes in the industry.

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