A friend of mine recently asked me what I had learned from writing The New Merchants of Grain. A quote from Winston Churchill came to mind. He said,
“Writing a book is an adventure to begin with, it is a toy and an amusement, then it becomes a mistress, and then it becomes a master, and then a tyrant. The last phase is that just as you are about to be reconciled to your servitude, you kill the monster, and fling him out to the public.”
I had already had that experience with my earlier books, but what did I learn from writing this book in particular? I have come up with five ‘lessons-learnt’.
The first is the importance of leadership. CEOs and senior managers often get a bad press, but they play an essential role in setting both the culture and the strategy of a company. Management consultants may talk about ‘bottom-up’ organisations, but in my experience everything comes from the top. Of course not all CEOs are equal, and a company has to have the right one, but after writing this book I will never again say that a CEO is overpaid!
The second is that companies are just people. Again the media likes to present big companies as faceless organisations, but they aren’t. Enterprises are just a bunch of real people trying to do the best they can for their company, their families and for the world in general. Of course there will always be people who prioritise their own self-interest above the general good, but they tend not to last long in a team-based structure. And all companies are team-based structures.
Third, writing this book really drove home to me the cyclical nature of our business, not just in terms of agricultural production but also in terms of investment in infrastructure. Booms lead to busts. We all know that, but we still often fall into the trap of believing that ‘this time will be different’. It rarely is, and it can take years to work off the investment overhang.
Fourth, writing this book drove home to me the way in which up-cycles—and their accompanying profits—attract new players, increasing competition just as the cycle turns and times get tougher.
It is often said that in a slow growth industry you have to be in the top three companies to earn a decent return. As I wrote in my book, seven companies account for 50 percent of the world trade in grain and oilseeds. That may be four too many. But also as I wrote in my book, consolidation is currently blocked, leaving participants to eek out economies of scale in regional and sectoral joint ventures. This situation may last a while.
Lastly, I learned that different markets behave in different ways. Sugar may be similar to grain, but it is not the same.
When I started in the business 40 years ago commodities used to trade in silos. If you began your career as a cocoa trader you stayed a cocoa trader—and it took a lifetime to really learn the business. Meanwhile, what happened in the cocoa market rarely affected what happened, say, in coffee or orange juice.
This situation changed over the intervening years with the ‘financialisation’ of the commodity markets. The growth in computer power, accompanied by the growing popularity of commodities as investment tools, led to the market rather than the commodity being the dominant factor. A hedge fund manager could trade numerous commodity markets without any real understanding of each underlying commodity.
This has now been largely discredited, and commodity hedge funds have pretty much disappeared. We are seeing a return to commodity ‘silos’ where traders become experts in their own commodities, rather than in commodity markets as a whole.
I would venture that we are in the process of transitioning back to markets that are once again based on underlying fundamentals, viewed of course through the filter of human emotions. That would be a big positive for our industry. I hope I am right!
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Out of the Shadows – The New Merchants of Grain is now available on Amazon