A conversation with Jean-Luc Bohbot

Good morning, Jean-Luc. What is Wilmar’s position now in the sugar business?

We are the only global, fully integrated sugar company involved all along the supply chain. We produce sugar from both cane and beet. We are refiners, traders, distributors, and we have our brands.

We have 24 mills worldwide: eight in Australia, seven in India, seven in Morocco, and two in Myanmar. We process about 21 million tonnes of cane and 6 million tonnes of beet globally per year. All that adds up to an annual sugar production of approximately 3.5 million tonnes.

In addition to our cane and beet mills, we also have nine refineries: two in Indonesia; two in Australia; one in New Zealand; two in India; one in Saudi Arabia; one in Morocco – in total, about six million tonnes of refining capacity.

Without double-counting, we have an annual trading volume of around 16 million tonnes. In terms of distribution, retail and the food industry, we do about 3.5 million tonnes. We manage various consumer brands, for example, Chelsea in New Zealand, CSA in Australia, Madhur in India, Gazelle, and others in Morocco.

Our business model is to have our assets and trading fully integrated, where trading contributes to the asset performance using the assets’ ‘captive’ volumes.

Which countries have the most significant impact on the sugar price?

Two countries drive the price on the supply side. Brazil is the first, with about 60 per cent of the world export market. India is the second, with big swings in production and exports and a hefty dose of politics. India always has the potential to destabilize market equilibrium in one direction or another.

China drives the price on the demand side. It is the world’s biggest importer of sugar, and domestic demand continues to grow. It’s not just sugar. China is a major importer of grains and soybeans. These commodities, along with sugar, are of strategic importance to the country. China operates a system of strategic reserves. It often makes it difficult to predict whether they will meet domestic demand, or part of domestic demand, by running down stocks or through imports.

What are the other price drivers?

The world is going through an energy revolution of decarbonization, transiting from fossil to renewable fuels. We are just at the beginning of this revolution.

Developing countries face a more significant challenge than developed countries. Not only do they have to manage existing demand, but they must also manage two-digit growth in energy demand. It is an important issue for them. To reduce GHG emissions, they must react strongly and quickly. Bioenergy could play a growing role in the range of options offered to control footprint emissions.

Today, sugar is highly correlated to energy – particularly crude oil – due to the link in Brazil and, increasingly, in India. Brazil can swing 30 to 70 per cent of the sugar or ethanol ratio production – that’s a lot of sugar! Ethanol can also play a key role in hydrogen as an energy source. It could also be used in jet fuel.

This energy revolution will impact all agricultural commodities, and there will be increasing convergence between agriculture and energy – green energy.

At the same time, climate change is making the weather increasingly unstable and unpredictable. This year, we have drought across the Americas, frosts in Southern Brazil and floods in Europe. I can’t say for sure that climate change is producing these dramatic weather shocks, but I feel that they are a foretaste of what is to come.

Agricultural commodities, whether sugar or soybeans, depend too heavily on a few countries to produce them; weather shocks in these few countries have a multiplier effect on production and price.

Are you worried that electric vehicles (EVs) might negatively impact ethanol demand?

Not really.

Leaving aside deforestation, Brazil is one of the least polluting countries globally, thanks to hydroelectric power, ethanol, and bagasse. Ethanol produces 70 per cent less CO2 than gasoline. Brazil is a world leader in terms of GHG emissions from transport. Why would Brazil change its energy matrix to include EVs, considering the investment they would need to build the charging infrastructure?

EVs are a solution for Europe and the US – countries that can afford to invest massively in the necessary charging infrastructure or for local cars in highly polluted big cities like in China. Many countries don’t have the capital to build the required charging infrastructure. It will lead to a backlash against EVs and a slowdown in demand growth. EVs are great for people in rich countries who don’t drive long distances or remain within a specific range of their homes or offices.

Ecologists like EVs, but the GHG footprint of EVs depends on how you produce the electricity. India produces over 70 per cent of its electricity from coal. About 20 per cent of the lifetime GHG footprint of an electric car occurs during its manufacture. When, on top of that, you use coal electricity, your final GHG footprint is not a positive contribution. It is no surprise that India is making a significant move towards ethanol.

In China, coal provides most of the electricity. It is fossil fuel electricity, not green electricity. EVs won’t help China or India significantly transition from fossil fuels; instead, they will keep them in place. Natural gas is 50 per cent less polluting than coal but is still 20 to 30 per cent more polluting than ethanol. The transition in developing countries will be towards a mix of solutions, but with ethanol playing a more prominent role.

There is also a question of how long it will take to replace the existing fleet with EVs. The average car in India is 15 years old. It will take years for the country to move to EVs, and the world can’t wait that long. We need an urgent solution. Ethanol is a cheap and immediate option for developing countries to reduce their CO2 emissions from road transport.

 Thank you, Jean-Luc, for your time and input.

This is a short extract from Commodity Crops & The Merchants Who Trade Them available on Amazon.

© Commodity Conversations ® 2022

A Conversation with Alex Sanfeliu

 Good morning, Alex. Could you please tell me a little about yourself?

I joined Cargill in Barcelona in 1995 as a junior trader and moved to Geneva in 2000 as a wheat trader for Europe and the Black Sea. In 2003, I transferred to the bean desk, eventually becoming soybean meal desk head by 2007. In 2010, I moved to corn as desk head, and, in 2014, I became the Business Group Leader in our World Trading Group (WTG).

The WTG sits at the centre of Cargill in terms of agricultural commodity trading. From here, we manage and lead the whole organisation for all our trading in wheat, corn, beans, meal, vegetable oils, palm, and softs. I am effectively the trading manager for Cargill in the agricultural space.

 Which of your roles have been the most fun and which have been the most stressful?

Trading is my passion, so I have enjoyed all my roles. I had the most fun as a desk-head, a job which is 120 per cent focused on trading. Wheat is my favourite commodity because of the different countries and qualities involved and because it switches quickly between deficit and surplus. You must be agile to trade wheat. It usually has the highest volatility of all Agri commodities, which means it gives you plenty of opportunities throughout the year. My second favourite is vegetable oil, again because of its optionality and trading opportunities.

Physical defaults are the most stressful part of my job. The most difficult ones to predict are usually politically driven, like when there is regime change in a country or a financial or forex turmoil that results in commodity defaults. The stressful part is that our jobs turn into limiting losses instead of capturing opportunities; it is like playing to tie instead of to win.

The agricultural supply chains have shown resilience during the recent pandemic. How do you explain that resilience?

Agricultural supply chains are efficient and flexible. Our business is not a high margin one, and we constantly strive to keep costs down. We must be efficient to be successful and adapt to changing environments. COVID was unique, but we have had other unusual events over my career and had to adapt quickly to changing circumstances.

The second point is that our sector is not labour intensive – crushing plants and feed mills do not require a large labour force to operate. Many agricultural workers spend most of their time outside, whether on a farm or an elevator; they do not work in offices where people sit close together. As for our offices, we operated from home right from the beginning of the pandemic. At one point, we had 60,000 Cargill people working from home, and things went perfectly.

We tend to say that Cargill shines when things get tough. It happened in 2008, and it happened again in 2020. Challenges drive us. Resilience is in our DNA.

Agricultural commodity pricing has become more transparent, but Cargill has continued to operate profitably. What is the secret?

I must be careful not to reveal all our secrets, but part of our success results from our ability to reinvent ourselves constantly. Being a private company makes this easier. It allows us to have more of a long-term view than some of our competitors and to pay less attention to short-term results.

Agricultural commodity prices are cyclical. Trading companies tend to downsize in quiet times, reducing investments in data, analytics, and infrastructure. We do the opposite. Margins shrunk in the flat markets from 2014 to 2018, and it was tough to make money as a trader in low volatile and oversupplied markets. We used that period to invest in data, analytics, systems, and people. When the tide changed, we were ready to take advantage of the opportunities that appeared. There is only a narrow spread between excellence and doing average in quiet markets. When things get more exciting and volatile, that spread widens considerably.

We have three further advantages when it comes to trading.

First, Cargill is present in most geographies and is all along the food supply chain. We have data that goes from the farm to the fork. Second, we have long experience successfully developing trading talent and knowledge of agricultural markets. Third, we have invested heavily in new technologies such as Artificial Intelligence or Machine Learning. Combining those three elements – data, top trading talent, and technology – gives you a winning combination.

Do you envisage a day when agricultural supply chains no longer need intermediaries?

I don’t like the word intermediary. We are not intermediaries. We don’t just buy something and try to sell it at a profit. We originate, transport and process agricultural commodities. We operate silos, warehouses, port elevators, ships, and factories, and we add value at every stage of the supply chain.

What advice would you give to someone starting in the business?

First, I would ask them to enjoy what they do. They need to be true to themselves. Do you love the job or not? There is no middle pathway in trading. Trading attracts people because of the excitement and the financial rewards, but you quickly discover whether you love it or hate it once you are there. You need to love it. It is an intense and challenging job, so you better enjoy it!

Second, I would advise a recruit never to stop learning! You will be quickly left behind if you stop learning. You can quickly go from excellence to obsolescence.

Third, I would tell a recruit to stay humble. A big ego is the enemy of many traders. There is nothing to gain from having a big ego. The best traders that I have seen in my career have been humble.

Thank you, Alex, for your time and comments!

This is a short extract from Commodity Crops & The Merchants Who Trade Them available on Amazon.

© Commodity Conversations ® 2022

A conversation with Dave Whitcomb

Good morning, Dave. Could you tell me a little about yourself and your background in commodity trading?

In 2004, I joined Cargill’s pension fund management team at their headquarters in Minneapolis, Minnesota. In 2010, I moved to Cargill’s grain trading group in Geneva to help build what they called their Non-Fundamental Analysis (NFA) group.

I founded Peak Trading & Research in 2018 as a quantitative agricultural research and trading company, where I’m currently the Head of Research.

How do non-fundamentals affect the markets?

The contract price will always converge with the cash (physical commodity) price when a futures contract expires. However, as a percentage of market participation, the number of players who use futures to source or deliver cash is decreasing. At the same time, the total number of players trading non-fundamental inputs has increased.

Until they expire, futures contracts will often make significant moves based on non-fundamental factors such as macroeconomic data and momentum trader flows.

You may be bearish based on your S&D balance sheet. Still, the macro-economic environment may be bullish – it’s challenging to stay short if crude oil is going up, the dollar is down, and inflation expectations are rising. You also need to take seasonal factors into account. Is it a time of year when prices typically move higher? You must also look at momentum; is it pointing upwards?

What does every fundamental trader need on their non-fundamental dashboard?

We refer to the non-fundamental price drivers in agriculture markets are the “Four Ms”: Monthly seasonality, Macro, Momentum, and Market Structure.

Agricultural markets have strong seasonal price patterns. Every commodity is different, but we see predictable and consistent seasonal patterns across most grains, oilseeds, meats, and softs.

Macro-flows are critical for agricultural markets: macroeconomic data, central bank policies, currencies, and energy, particularly crude oil.

Momentum is our third M. Many hedge funds focus on momentum as a reason to get into or out of markets. They try to catch the big moves, especially at the front edge of the futures curve. Momentum traders try to stick to the most liquid part of the curve.

Market structure is our fourth M. Fundamental traders must be aware of the Commitment of Traders (COT) reports showing how market players like hedge and index funds are positioned. Are they over-extended, either long or short? How vulnerable are those positions, given what prices are currently doing? Will we see a long liquidation, or, if they are short, will we see a short squeeze?

Can a fundamental trader be successful now just trading fundamentals?

It isn’t easy. Markets see cash convergence at expiry, but in the meantime, futures are increasingly following non-fundamental inputs. Traders who trade non-fundamentals continue to attract capital and are having more impact on our markets.

There’s a lot of focus on inflation right now – how is that affecting the markets?

The easy money is probably behind us. The Fed has announced that it will start tapering, winding down its Quantitative Easing (QE) purchases. We could have hikes in interest rates in the middle of 2022. Central banks are now actively working against inflation. It doesn’t mean that inflation can’t continue. One year ago, central banks were trying to manufacture inflation. They are now slowly shifting to capping inflation. Over time it will take some wind out of the sails of this supercycle story.

What would you put on a macroeconomic dashboard for agriculture traders?

Every trader should watch the US dollar and Crude Oil.

For the US dollar, we often say, ‘US dollar up = Ags down.’ Most of our markets are dollar-denominated, and changes in the dollar can impact the competitiveness of US products. A strong dollar encourages origin selling and acreage expansion while making US products less competitive.

Crude oil also matters for the ag markets. Strong energy markets ripple through the ags in many ways: higher fertiliser prices, production costs, transportation costs, etc. Then there are the secondary impacts like hedge funds buying futures because crude oil is going up. Energy market strength lifts ag futures prices in many different ways.

Beyond crude oil and the dollar, it’s essential to watch US and Chinese stock markets, commodity currencies like the Canadian and Australian dollar and the Russian rouble, bond and inflation markets.

What you have on your dashboard depends on the market you trade. Every commodity has its unique set of macro indicators.

And these macro indicators change over time. You must look at correlations and see which macro indicators move which market. Soybean traders currently watch fertiliser prices, propane, and natural gas. Five years ago, they watched Chinese rebar prices as a good proxy for Chinese growth expectations and soybean import demand.

Do physical traders still have an advantage?

Physical traders have a massive advantage if they work in trading houses where they can trade the various arbitrages available to them. They are beginning to understand how these new market participants operate and are learning to complement their views with non-fundamental inputs. It is absolutely a move in the right direction.

If they haven’t done so, every trader should build out a dashboard of non-fundamental trading inputs that matter for their market. Every market is different. Sugar has strong seasonality. Lean hogs are an excellent breakout market. Cocoa is mean-reverting. Bean oil trades all these macro flows. Work out which non-fundamental factors are essential in your commodity, and then follow them like a hawk!

Thank you, Dave, for your time and comments.

This is a short extract from Commodity Crops & The Merchants Who Trade Them available on Amazon.

© Commodity Conversations ® 2022

‘Going where no one else would go’ in the digital age


by Wouter Jacobs – Erasmus University

In their book, The World for Sale, published in 2021, Bloomberg reporters Jack Farchy and Javier Blas documented in rich detail the evolution of global commodity markets during the late twentieth century. They made explicit the modern-day commodity trading firm and the practices of their top-dog traders and executives. The crux of their analysis is that traders “go where no one else would go”. It is a trait that resonates with the characteristics of the merchant trader from an earlier era. Still, it remains a critical human-based skill in our current period dominated by Big Tech, Big Data, and Artificial Intelligence (AI)-based machine learning.

However, the ongoing financialisation of commodity markets, digitalisation, the quest for sustainability and inclusion, the emergence of decentralised and alternative forms of finance, the decommodification of supply chains and when or how to navigate the geopolitical and macro-economic restructuring of the world economy are all changes that require commodity trading firms (CTFs) to integrate new skills and mindsets.

CTFs need more analytics and more analysts to synthesise the increased amount of data points to inform decision making and trading strategies.

CTFs need to install compliance, due diligence, and Know Your Client (KYC) protocols to meet the demands of regulators, financiers, and the public. These protocols can be expensive, and they can constrain the intrinsic capability of a company’s traders to go where no one else would go.

CTFs need to take the time, effort, and leadership to incorporate sustainability into their company’s DNA. It requires specific skillsets to monitor and report on Sustainable Development Goals (SDGs) with nitty-gritty detail, such as the amount of water used per plantation or the carbon exposures of a particular trade. It may require a public relations office protocol and narrative to deal with any criticisms. It may require strategies to maintain a local license to operate and a moral compass.

Finally, CTFs need to digitalise their operations to synthesise complex information. Adopting information technology has been critical for commodity trading, but CTFs are not leaders in the space. Some struggle to define and optimise their digitisation needs to adapt to the rapid emergence of decentralised platforms for exchange, finance, and post-trade execution.  

Given all these changes and the specific demands for skillsets, CTFs need to develop what Berkeley university professor and business guru David Teece has referred to as dynamic capabilities. Dynamic capabilities refer to the ability to sense, seize, and transform.

Sensing refers to scanning the business environment and identifying new opportunities that emerge from new technology. CTFs must seize any opportunities and translate them into their business model and adapt it accordingly. CTFs can encourage sensing through scenario planning and actively scouting for opportunities.

Seizing is more complicated. It requires clever re-combinations of existing competencies, such as rapidly prototyping new technologies into the workflows. An example of this was when some CTFs first ran in-house pilot projects on blockchain before joining a platform. Another (digital) seizing strategy is to consider lean start-up methodologies.  An example is Farmer Connect, founded by Sucafina’s head of trading, David Behrends.

Transforming is the most complex. It sometimes requires a wholescale redesign of its business model, asset portfolio, routines and competencies while insourcing entirely new or related skillsets. Internal shaping might involve – as Olam has recently done – an organisational separation of business lines. External shaping might include investing in universities’ education and training programmes or B2B platforms and digital ecosystems.

The Covantis platform, in which the ABCDs, Viterra and Cofco took the lead, is an example of the latter. Its scale and incumbent support can capture ‘network effects’ and dominate the market quickly, similar to other platforms (e.g., Netflix, Uber, Airbnb) in different markets and industries. While Covantis is now about trade execution, it may evolve into something more commercial. Be that as it may, it is not unthinkable that new platforms might even displace many of the intermediacy benefits of individual CTFs.

Finally, dynamic capabilities require managers to overcome company-internal barriers to novelty while designing governance structures and a business culture that enables adaption or business transformation. Often periods of crisis, low profitability or the risk of a hostile takeover can act as wake-up calls and remove internal barriers to change.

The archetypical successful trader goes where no one else would go. This risk appetite, combined with an intermediate position that captures value from information asymmetry within global supply chains, still defines a CTF’s business model.

But the amount of information upon which to act has increased exponentially. CTFs have increased their analytics teams accordingly. The larger companies have invested in technical analysis and quant-based trading modelling and strategies, predictive analytics, etc., while internally optimising their data systems. They have added new skill sets to the company, which do not involve ‘going where no one else would go’ in the traditional sense.

However, ‘going where no one else would go’ still matters in a world defined by digital apps and algorithmic machine learning.  It may matter even more in the future, although with a smaller physical presence than in the past. Understanding and appreciating local circumstances, cultural conventions, and languages is necessary for building trust and relationships.

‘Going where no one else would go can give you an informational edge that no algo (still) could grasp’.

This is a short extract from Commodity Crops & The Merchants Who Trade Them available on Amazon.

© Commodity Conversations ® 2022

A Conversation with Michiel Hendriksz

Good morning, Michiel. Could you please tell me how you got involved in the cocoa business?

After leaving Cranfield, I worked for a Dutch company exporting agricultural products, mainly frozen vegetables, to Spain and Portugal. I stayed in food marketing and distribution, working in the UK, Spain, and France before accepting a position with ADM, marketing their cocoa products into Southern Europe. I already knew all the buyers and understood food systems, so it was a great fit. Technically speaking, cocoa powder, cocoa butter and liquor are all food ingredients with specific attributes.

In 2007, I migrated from sales to trading and became director of trading and manager West Africa.  Trading cocoa was increasingly about what we now call sustainability, and I worked closely with the Sustainability Director until he left in 2011. I took over his role, shedding my previous trading responsibilities, but remained in contact with clients on sustainability issues. I represented ADM Cocoa in many initiatives, steering committees and working groups.

Why did you found FarmStrong?

ADM decided to get out of cocoa; it didn’t fit well with their other commodity trading businesses at that time. It took time to find buyers. Cargill eventually bought the chocolate assets, while Olam bought the cocoa processing, grinding, and pressing.

In 2015, I left ADM and started FarmStrong to have the independence to advise trading companies looking to make their supply chains more sustainable. The French commodity trading company Sucden was an early customer and supporter.

What does FarmStrong do?

We design sustainability programmes for most of the significant international chocolate manufacturers and some smaller family businesses. We also currently run two programmes partly financed by the Swiss government. We do some work with UN agencies, developing and scaling up their environmental interventions. We also receive UN support to scale our programmes. We are a non-for-profit recognised by the Swiss federal government for its work in the public interest.

Our programmes include training in good agricultural practices, but agriculture is not necessarily the most significant problem farmers face. The cocoa tree is not the problem. The most important issues that farmers, families, communities face are health, nutrition, education, security, and poor infrastructure.

Why have the chocolate companies failed to eradicate child labour from their supply chains?

The NGOs put pressure on the chocolate companies to eradicate child labour, but independent research has shown that it hasn’t worked even in their narrow supply chains. Chocolate companies can do more, but they can’t solve the problem on their own.

The fact that child labour exists in West Africa has nothing to do with cocoa. Child labour is still widespread regardless of the crop that the farmers are growing. It is a correlation, not causation.

One of the biggest problems is that many children in the Ivory Coast do not officially exist. They don’t have birth certificates or registration documents. Their (grand) parents immigrated and never went through any registration process. A child cannot go to school in Ivory Coast without a birth certificate, and they can’t get a birth certificate if their parents don’t have an ID. It is difficult to get an ID if you don’t have a birth certificate or are not registered.

Sometimes local schools allow unregistered children to attend classes, but as soon as they are twelve years old, they must take an exam to move on to secondary school. They can’t take the exam unless they show they have a birth certificate or are officially registered. So, their schooling ends at 12 years old, and they work on their parents’ farms. Sitting at home is not an option.

The sector is facing enormous challenges. What is to be done?

Chocolate companies, trade houses, governments and the public are putting massive amounts of money into cocoa, channelling it at a high cost into aid agency programmes. These programmes are well-intentioned but largely ineffective. Independent research shows that they had little impact for the last 20 years.

If you want to improve cocoa farmers’ livelihoods, don’t help them grow more cocoa.  Encourage them instead to grow more food crops that they can either eat or sell locally. And acknowledge their issues around health, nutrition, education, registration of births and land.

Thank you, Michiel, for your time and input. 

© Commodity Conversations ® 2022

This is a short extract from my next book Commodity Crops & The Merchants Who Trade Them – available now on Amazon.

A conversation with Paul Hickman

Good morning, Paul. Could you first tell me how you ended up in Singapore trading palm oil?

I worked for Cargill until 2013 when I joined Golden Agri-Resources (GAR), where I am now head of global vegetable oil and oilseeds.

How significant is GAR in palm oil?

 Palm oil differs from other commodities in that the top traders are also producers. Why is that?

Several things differentiate palm from many of the competing food crops. First, you must wait four years before the trees get to an age where they bear fruit. It’s a substantial upfront cash investment with no returns for those early years.

Second, there are no government subsidies, unlike the significant taxpayer-funded contributions paid to European and American farmers.

Third, once the trees are mature, harvesting takes place every two to three weeks.

Given the size of the upstream investment and the need to ensure a home for the product year-round, many producers felt the need to control their destiny by vertically integrating into processing, trading, and distribution.

How important are physical assets in trading palm oil?

You don’t need physical assets to trade palm oil. There is plenty of liquidity in the Dalian futures market in China and the BMD in Malaysia. However, assets are a necessity if you want to be involved in the physical movement of palm oil. End users are increasingly demanding. They insist, rightly so, that their suppliers control their supply chain at every step of the process. It is not just about sustainability but also about food quality.

 People talk about palm oil plantations, but what percentage of world supply is produced by smallholders versus large companies?

At least three million smallholders worldwide make a living (or part of a living) from oil palm; they produce more than 41 per cent of the world’s palm oil. Even though smallholders are a vital part of the palm supply chain, they are frequently ignored in the palm story. The focus is inevitably on the more prominent actors like us. The reality is our business relies on smallholders producing more and better-quality palm oil in line with sustainability requirements. It’s in our interests to help them get there.

The average income for palm oil farmers in Indonesia is $2,500 per hectare per year compared to only $250 per hectare for rice. Palm oil contributes up to 60 per cent of income in rural areas in Indonesia. The palm oil sector has lifted millions of Indonesians out of poverty and has had a substantial impact on the welfare of rural communities through the provision of schools and clinics. Palm oil companies also provide and maintain critical infrastructure like roads, increasing connectivity and ease of access to previously remote rural areas

How do you react when people blame palm oil for deforestation?

Given the persistent negative stories and images linked to palm oil production, it’s easy to get defensive. Many of those images are highly emotive – orangutans fighting bulldozers comes to mind. In most cases, these are images from the past. They do not reflect the amount of work that the sector has done and continues to do to address deforestation.

Facts are on our side, but truth generally loses in a battle of reality versus emotive imagery.

But I’ll give you the facts. The most important one is that, worldwide, cattle farming causes the most deforestation. The World Resources Institute (WRI) has analysed satellite data and found that, from 2000-2015, cattle farming resulted in 45.1 million hectares of deforestation. During the same period, palm oil was a long way behind, responsible for 10.5 million hectares of deforestation.

Just for comparison, soy cultivation led to 8.5 million hectares deforested over that period. When you consider that virtually all soy goes to animal feed, meat production is responsible for 53.6 million hectares of deforestation during the period – more than five times more than palm production.

Compared to the meat industry, the palm oil sector has taken significant steps to combat deforestation. A combination of corporate and government policies has led to a decrease in deforestation in the palm oil supply chain, especially in the last five years.

What challenges does palm oil face in the future?

I would say there are three main challenges:

First, trade barriers effectively ban palm oil in specific markets – in Europe, the US, and elsewhere, where sustainability is used as a barrier to market access rather than an incentive for change. The palm sector faces regulatory barriers and shifting rules of engagement even though it has demonstrably done more than any other deforestation-linked commodity to address the issue. The EU’s REDII rules that take palm oil out of biofuels, along with ongoing due diligence regulation developments in critical markets, could have a chilling effect on the progress made. It’s absolutely the opposite of what the industry needs.

The second challenge is a lack of manpower. It will get harder to recruit palm oil workers as younger people do not want to work on the land. Palm oil remains an incredibly labour-intensive industry. The manual nature of harvesting is hard work and less attractive to young people.

Third, climate change and extreme weather will increasingly impact palm oil production. Any agribusiness needs to factor in not only the reduction of its carbon emissions but also carbon adaptation strategies.

Thank you, Paul, for your time and comments

© Commodity Conversations ® 2022

This is a brief excerpt from my new book, Commodity Crops & The Merchants Who Trade Them available now on Amazon

A Conversation with Colin Iles


Good morning, Colin.  You are responsible for both cotton and sugar at Viterra. Are the two commodities similar?

Commodity traders tend to focus on the differences between their different commodities, but, ultimately, once you block out the technical language and focus on the concepts, they’re all the same.

Cotton and sugar are similar in how the trade houses get involved in the futures expiry process.  As a percentage of open interest, I suspect that the positions taken into the expiry – or in the case of cotton, into the notice period – are larger in sugar and cotton than in other agricultural commodities.

Sugar and cotton trading distils down to ‘What is your view on the spreads?’ Your view on the spreads will impact your opinion on the physical premiums. The two are interrelated.

What is the secret to making money in cotton trading?

If there is a secret, it is assessing value.

You can assess value in various ways. In terms of time spreads, the value of cotton may be too low relative to the future, and you can arbitrage that difference.  In terms of geographies, you can find dislocations in value across different regions. Essentially all we do is look at the value of something relative to everything else.  We try to pick out the outliers that are either over or undervalued and make it work. Trading is about assessing value. You must reduce every discussion down to what value am I measuring this against?

Do you trade spreads and differentials more than the flat price?

I like to trade the time spreads in cotton because time is our only consistent value benchmark.

I don’t like trading cotton flat price. When you trade sugar flat price, you get price points where things happen and the balance sheet changes. The best example is the optionality that the Brazilian mills have in whether to produce ethanol or sugar. You can look at the price of sugar compared to ethanol and make a robust case for the flat price to move higher or lower. You have a value anchor where a move in price changes the balance sheet.

We don’t have that in cotton.  Fundamentally, it doesn’t matter if cotton moves from 65 to 90 cents a pound. It doesn’t bring significantly more cotton into production. Nor does it change demand from the spinning mills in Vietnam or the price of jeans on a shelf in Walmart in Texas. Consequently, trading flat price in cotton is often an exercise in second-guessing sentiment.

What advice would you give to a young person beginning in the cotton trade?

Get involved in the physical commodity and understand the full implications of any trade. Once you make a sale, someone must create a shipping order, book containers, send people into the cotton fields to draw samples and test them. Someone must go to the bank to open a letter of credit. You must understand how all those things interact.

You don’t have to be an expert in everything, but you must talk knowledgeably about every aspect of trading. You must understand the implications of tweaking one part of a trade; what does it mean further down the chain?

You must also be comfortable with large amounts of data. The future of trading is in understanding and analysing data.  On the production side, it may be in interpreting satellite crop data. On the demand side, it may involve getting live feeds on point-of-sale volumes in retail outlets.  Data mining and analysis are becoming a crucial part of our market analysis. It is a huge opportunity.

Thank you, Colin, for your time and input!

© Commodity Conversations ® 2022

This is a short extract from my book Commodity Crops & The Merchants Who Trade Them available now on Amazon

A Conversation with Todd Thul

Good morning, Todd. What’s your current position within Cargill?

I have a dual role. I have led Cargill’s global corn and ethanol trading activity for the last seven years, managing the worldwide teams. About one year ago, I also became managing director of our global grain business. That role goes beyond trading into the more commercial side of the company.

What is it that you like about the commodity trading business?

People usually explain commodity trading as a primary business that moves goods from surplus to deficit areas across time (carry) and place (dislocation) and form (processing). It may not sound like the most exciting thing, but it’s fascinating once you get into it.

There are many different aspects to trading and ways to approach it. I particularly enjoy the interaction with people, both customers and suppliers, that you get when you handle physical products, moving them along the supply chain. This personal interaction is an essential part of the business for me.

I also enjoy being involved in the shipping side, as well as leading teams, getting the best out of everyone, and mentoring teammates in their careers.

What gives you an edge both personally and as a company?

Collection, interpretation, and analysis of data are essential, but so too is teamwork.

What gives a team an edge?  Being competitive and hungry to win. What does that mean? It means that you’re gritty and creative, and you are constantly challenging and evaluating the situation around you, looking for opportunities.

Look at the analogy of a sports team, say a football team. A team plays together, works together, constantly looks for opportunities to score. At Cargill, teamwork is a vital part of our culture.

As a trader, you work in your own space, trying to leverage everything you can within that space, but your role is to contribute to the team’s success.  Teamwork is as essential in trading as it is in sports.

Whenever I talk to recruits, I emphasise the overlap between sports and trading.

What advice would you give to a young trader?

Don’t limit yourself to one product or one commodity. I would advise young traders to get to know and understand as many products and aspects of the business as they can. Gain experience across the space, across geographies and across products. Go as deep and as wide as you can and learn about as many commodities as you can.

During my career, I have traded both barge and ocean freight. This experience has been invaluable to me on the bean, corn, and veg-oil desks. You can’t trade commodities without understanding freight and logistics.

Likewise, my time on the vegoil desk has been invaluable when talking about or trading biofuels.

The approach to trading and the skill sets you need are similar across different products. There’s always a technical learning curve specific to each commodity, but your cross-commodity exposure will give you an edge as a trader.

Our ability to give traders experience over a range of commodities is one of Cargill’s strengths as a company.

What would be a likely career path for a young person joining Cargill today?

If you were to join Cargill, we would start with the business basics to understand what everyone else on the desk is discussing! We would also teach you the concepts and mechanics of supply and demand, logistics, freight, and risk management.

Most people will have some experience at a domestic regional location – in EMEA or the Americas – where you can learn and understand the basics of origination, where the supply chain starts.

That won’t be the path for everyone, but that’s how I started. Honestly, I think that if you want to learn something, you must go to the core, and origination is one of Cargill’s core businesses.

From then, your career will follow a natural pathway of growth and evolution of responsibility. You will go from talking local to regional markets, then on to a specific export market, entire geography and then global. It is not Cargill-specific; it is the general path a recruit would experience in big ag companies.

During your career, you will build your risk management skills and develop your risk tolerance and style. People sometimes believe they know their tolerance and style, but you only understand that through experience.

 What qualities are you looking for in a candidate?

I look first for a competitive team player.  You need to have a strong drive for results and equally want your teammates to win.  I’m also looking for someone with a creative side. I’m less interested in the specifics of past experience and more interested in their approach to things.  Do you seek challenges and like to find a solution for a puzzle?  I’m generally looking for that competitive edge combined with a creative side.

I am also looking for balance. Someone with an appetite and understanding for risk, balanced with the ability to manage that risk. I’m always looking for someone cool under pressure. The moment when everybody else is panicking is usually when an opportunity presents itself. That’s a complex characteristic to identify when you’re interviewing somebody, but it is something that I’m always looking for.

And the last thing is leadership. I believe that no matter what your role is, leadership is a high-value characteristic. How you manage yourself, how you interact with people, how you handle adversity. These are all relevant attributes for somebody running a commercial business, such as a trading desk.

Is there anything you would like to add?

Only to say that this business is awesome.

There are so many moving parts. What’s the future of EVs, the energy transition and renewable fuels, of China? I don’t know, but it excites the crap out of me that I don’t know. It’s my nature. It’s the nature of people we’re looking for, people who want the challenge to go figure it out.

Our industry is ever-changing, fast, and fascinating. Go for it!

Thank you, Todd, for your time and input!

© Commodity Conversations ® 2021

This is an extract from Commodity Crops & The Merchants Who Trade Them – available now on Amazon.

A conversation with Dave Behrends

Good morning, Dave. Could you please tell me your current role?

I am the global head of trading and a partner at Sucafina.

What is the key to success in coffee trading?

To get to the top in physical trading, you must first master the fundamentals. Successful coffee traders have experience in operations and finance and understand research, balance sheets, costing structures – all the minutiae that make up our business.

Once you have that base, coffee is still a people business, so you need a certain charisma and an ability to work with people. You need to understand the complexities of what the more prominent brands want – what do you need to do on the sourcing side to meet your clients’ expectations today and tomorrow. Traders need foresight and vision. The business is evolving so rapidly that you will fall behind if you do not think about those things.

Today’s successful traders have more quantitative backgrounds than in the past; they understand and process data in a meaningful way more than trusting their gut instinct. They also need to be digital natives and have sustainability embedded into their DNA.

How important is coffee in terms of development?

Can coffee save the world? No, but we can improve farmer incomes for the 12.5 million coffee farms worldwide and remove some of the volatility inherent in the business. We can work towards better social and environmental practices. If we do that, we give our customers an additional reason to enjoy coffee, which drives more consumption and has an increased impact on the whole supply chain.

To what extent does traceability affect your ability to be a trader?

Traceability is fundamental to our business. If you go to a supermarket and pick up a product that doesn’t list the ingredients and nutritional information, you will probably put it back on the shelf. That is the way traceability is going. In the future, if you don’t know where a product comes from and its route to get to you, you won’t buy it. Not only that, but you also want to see the product’s environmental and social impact – you want to feel good purchasing it.

In a way, it de-commoditises the coffee supply chain. Different clients have different needs, and various producers harvest different coffees. As merchants, we are the bridge between the two.

We are also increasingly involved in prefinancing farmers, improving quality while reducing inputs within the supply chain. Increasing the visibility within the supply chain gives our clients greater confidence in buying from us. It moves us towards building long-lasting partnerships with producers and customers.

You were the founder and the driving force behind Farmer Connect. How is that going?

Farmer Connect is an end-to-end platform that allows participants to share traceability, price transparency and ESG data in a standardised way across the supply chain.

I am pleased with the progress so far. I never set out to be the founder of a tech start-up company. I was just a trader that believed in traceability – and I thought that traceability depended on data. There was no mechanism to get data from the farm to the consumer, and I felt we needed one.  However, when I spoke to brands and retailers, they constantly told me how hard it was to go into every supplier’s website and see the data presented in different formats.   Their big ask was that the industry rally around a standard solution.

Although I did help get Farmer Connect started, I am not involved in the day-to-day operations. I don’t want any conflicts of interest, and I genuinely hope that it can be a tool that benefits the entire industry, including competitors of Sucafina.  Farmer Connect has expanded now into cocoa and has quite a few conversations with other agriculture verticals, so I am pleased to see it become more than just a coffee traceability platform.

Additionally, brands using Farmer Connect have been pleased with their sales and consumer engagement.   For me, that further validates the voracious appetite consumers have to embrace new technologies and learn more about the products they love the most.

Thank you, Dave, for your time and input. 

© Commodity Conversations ® 2021

This is a short extract from my book Commodity Crops & The Merchants Who Trade Them – available soon.

A (2nd) Conversation with Soren Schroder


Good morning, Soren. Could you please tell us what you have been doing since you left Bunge?

I left Bunge in June 2019 after six years as CEO and after 36 years in traditional agricultural trading and processing with Continental, Cargill, and Bunge. I am now trying to use my experience to help emerging companies across the full spectrum of the agricultural value chain.

What areas have attracted your attention?

I have focused on optimizing existing agriculture using modern technology: indoor agriculture, digital data around agriculture and food, natural rubber, micro-biological products that improve yields, carbon capture, and remote sensor equipment to monitor grain quality.

Aquaculture is perhaps also a piece that deserves special mention. Next to cultured meat grown in fermentation tanks, aquaculture is probably the most efficient way to transform feed into protein. It can make a very positive environmental impact as feed, sensor and data technology evolves further.

So too will indoor controlled agriculture, starting with leafy greens and quickly evolving into vegetables, fruits and berries. It is a sector undergoing a massive technological revolution, and it brings production closer to the consumer.

Over the past 75 years, the focus has been on increasing agricultural yields while at the same time reducing costs. It has been about growing enough calories. We still want to produce enough calories, but we now want to develop the right kind of calories in a way that doesn’t harm the environment, repairs the soil, and produces nutrient-dense food.

It is a new revolution: using technology to improve existing production techniques and regenerate soils. The goal is to harness the power of ‘Production Ag’ without all the adverse side effects.

The world is working to decarbonize the economy. Is that driving this new agricultural revolution?

Decarbonization is part of this new agricultural revolution, but there are other forces at work, all pointing in the same direction. For example, the demand for alternative proteins is driven by consumer preference for healthier food and concerns over animal welfare; it’s not just about carbon.

But it’s all moving in the same direction. Alternative protein was not created only because of a quest for decarbonization, but it’s part of the equation. You see this with new initiatives from the USDA and the new Green Deal in Europe. Both support the transition to the next stage of precision farming, where agriculture contributes to carbon capture or reduces farming’s negative impact on the environment. At the same time, it allows farmers ways to differentiate between the crops and products they produce.

I put indoor farming, genetics, data management, artificial intelligence, and robotics in the technology bucket. Am I missing something? 

I would certainly include soil health; it is almost a bucket on its own. Soil health is the key to unlocking many carbon initiatives and finding better ways to deploy and create plant nutrients.  The USDA and many companies are trying to figure out ways to monetize carbon captured under different farming practices and protocols. We must develop carbon capture standards. The USDA is best placed to do that, especially if it means financial incentives to allow farmers to change practices.

Carbon farming comes under the bullet of soil health. It is already happening but not yet at scale.  The scale will come with standards.

It seems that regenerative agriculture has a significant role to play.

There are – at least – two schools of thought on regenerative agriculture.

The first is where you let nature do its work, and you learn from the best practices that have been proven over the centuries. You don’t till. You plant cover crops.  You have farm animals that fertilize the ground, and you thoughtfully rotate them. It’s an integrated system where, over time, you create a healthy soil microbiome. Using modern equipment and data results in similar yields and possibly better profitability than you would get using traditional technology, chemicals, and fertilizers.

There’s another school of thought where regenerative agriculture means using all the tools in the toolbox. One tool might be CRISPR technology for seeds. Another might be advanced micro-ingredients for nutrient build-up in soil that can substitute for chemical fertilizers and eliminate some pesticides. It is about using technology to its fullest extent to improve soil health and capture carbon in a turbocharged way.

I think the result might be the same, but how you get there is vastly different. Big Ag is going for the second option, using every tool in the toolbox.

Big Ag faces a problem with consumers’ apprehension over and understanding of technology.  Consumer attitudes in the western world could ultimately prevent farmers from efficiently producing enough food to feed everybody and do it in a sustainable, healthy way. We need to find a way for the consumer, the farmer, and the technology providers to communicate and establish trust.

Thank you, Soren, for your time and input.

© Commodity Conversations ® 2021

This is a short extract from my upcoming book Commodity Crops & The Merchants Who Trade Them.