Jordi Costa joined Bunge in 1999 and is Vice President of the company’s European Softseed value chain. We discussed his career over lunch in Geneva.
How did you get into agricultural commodities? Do you come from a farming background?
I’m a civil engineer. I studied bridge design and construction, and worked in the field for five years. I designed three bridges; they were built and are still there. I enjoyed the engineering work, but my future father-in-law introduced me to the agri-commodity world and told me about an opportunity at Andre & Cie in Spain. He suggested I try something more dynamic than engineering!
Andre was interested in my math background. I accepted their offer and worked on positions, risk management, and options. In engineering, we frequently encounter second derivatives and nonlinear models, particularly in the field of structural vibration. Derivatives were pretty easy for me. I began with the technical aspects of the business, including exotic options, regular vanilla options, and so on. A few months later, I moved to Rome, Italy, where I worked for Pedro Ritter.
I recently spoke to an ex-trader, and he said he would only employ engineers if he were still in the business.
Engineers have a practical mathematical background. As traders, we must make decisions based on imperfect information. Engineers do that all the time. They have incomplete information, but must build things with safety nets. They must consider the worst-case scenarios and assess the associated risks. In the case of a bridge, it might be due to a severe flood, an earthquake, or a ship colliding with it.
You must make quick decisions in commodity trading, whereas I imagine you’ve got more time to think and analyse in engineering.
Exactly. The beauty of the commodity business is that the market environment is constantly changing. That’s quite different from regular engineering work. Things change constantly, particularly in volatile environments like today, and we must adapt quickly.
What’s the most challenging part of your current position? What keeps you awake at night?
Like all commodity traders, we must stay on top of trade flows and the S&D, but I must also consider capacity utilisation. The biggest challenge is managing capacity in the sector. We are experiencing a ramp-up in soy crush capacity in the US, driven by expectations of growth in renewable diesel production. We must closely monitor the world’s demand for Renewable Diesel (RD) and Sustainable Aviation Fuel (SAF) to determine if it will support their growth.
Another common challenge in our industry is talent acquisition. Our industry plays a critical role in the world, but not everyone recognises how interesting and exciting it can be as a career, so it’s difficult to find the right talent. Some people worry that AI will take over tasks that people currently perform. I don’t see it that way. I believe AI is a tool that will help us make better decisions. Even so, we will still need smart people to make those decisions. Today, the commodity business is more transparent but still not widely known.
Is processing key in vegetable oils? Do you need to own industrial assets to trade?
I would say 50 per cent of what we do is trading. We always manage the assets with a trading view. As a trader of processed commodities, we are always long of processing capacity. I’m constantly asking myself, “Do I first buy the seeds or first sell the products? Or do I reverse the crush by reselling the seed and buying back the products? ”
You can trade vegetable oils without assets, of course. It’s a big market. If you trade without assets, you have some restrictions but also some freedom. If you trade around assets, you have fixed costs but have a processing margin to manage. To me, owning assets in a commodity supply chain is an advantage: it provides a better view of what’s to come regarding supply and demand, physical constraints, logistics, and a genuine connection with farmers and customers worldwide.
Is it advantageous for a value chain to stretch from the farmer to the supermarket?
I think it’s an advantage to have an integrated value chain. A good example was the European biofuels market last year. At a certain point, we could compensate lower crushing margins on rapeseed with higher margins on RME biodiesel (Rape oil Methyl Ester). Buying rape oil from the market to produce RME entailed significant additional logistics costs; however, the full margin approach enabled us to efficiently run both units at full capacity.
How do you cope with the stress of trading?
I have got used to it. I like action. I feel something is missing when there’s no stress. So, if you like action, you want things to happen and markets to move.
Stress grows when things don’t work as planned. Managing our risks and knowing how much we can make or lose makes me sleep comfortably. For me, managing stress effectively involves being disciplined in risk management. Be aggressive, but never overtrade. Let your bosses know what your positions are and what your exit plan is if things go wrong.
I have also learned to be disciplined about cutting losses. You lose control when a position becomes unmanageable and losses become too significant. Then you’re just hoping, and hope is never a good strategy. I ask all traders to operate within a framework of risk and stop losses or drawdowns.
What about AI? How will it help traders and managers?
It can be a good risk management tool. It already consolidates internal information about different traits. One of our Big Data-AI tools informs us about the oil yield we receive from the various farmers. It tracks what the farms deliver and their quality specs. It gives us real-time information to say, “Okay, this farmer is systematically producing better quality soybeans with a higher oil yield. If I have to pay $2 more to get his lot, it’s worth it.”
What one piece of advice would you give to a trader on their first day on the trading desk?
Be curious. You want to understand why things happen and, over time, to connect the dots. Our work is a lot about connecting the dots. Maintain your level of curiosity at all times.
What do you know now that you wish you knew when you started trading?
How to use a framework to manage risk. Today, I can take a lot more risk than I used to and sleep much better.
Have more confidence in your analysis. I constantly rechecked the analysis and the assumptions we made to enter a trade. Today, we do a good job when we do a good analysis. It may be wrong, but if we do the proper analysis, we will be right 8 out of 10 times.
What do you like about your job?
I like the connectivity and the action. It is never dull. Every day is different. Every day, something happens. Every day, you must think about how something will impact us in any part of the world. I’m still excited about what I do after more than 30 years in the business. Not many people could say that in different sectors.
In contrast to mining or oil, the agricommodity world originates grain from the aggregation of many small land plots, and this process occurs all over the world, including Brazil, the US, the Black Sea, and India. We have consumers everywhere. You’re all connected. It’s fantastic. It’s amazing.
The above is an extract from the second edition of my book, Commodity Conversations – An Introduction to Trading in Agricultural Commodities, available on Amazon.
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