Category: Blog

Colt Bagley III is credited with revolutionising the sugar business in the 1970s and is sometimes described as the “Marc Rich of the Sugar Business.” I talked with him via video conference from his home in Bermuda and asked him to tell me a little about his life before commodities.

I grew up in Minnesota and attended a military school at an early age. I had learning disabilities, and the small classes suited me better. The school was rough, but athletics was fun. In high school, I realised that I wanted to explore the world. Days after graduation, I joined the Marine Corps, serving three and a half years, including 14 months in Vietnam.

Serving in Vietnam and visiting Japan, Korea, and Australia was eye-opening. I never looked back. I came home and completed the University of Minnesota in three years with a Chinese History and Mandarin degree. I played hockey for the University and had the opportunity to play at higher levels, even in Minnesota. However, I needed less practice time and more academic time in the library to get on with my life. By then, I loved playing hockey for fun, but nothing more.

Did you join Cargill because it was an international company?

I grew up in Wayzata, Minnesota, where the MacMillans and the Cargills lived just down the road. My great-grandfather owned a country grain elevator company with plants in Minnesota, the Dakotas, and Montana. At one point, he was a joint venture partner with Cargill, but he didn’t like his counterpart and ended the relationship.

While I was in high school, I worked at the Dakota elevators and the Minneapolis Grain Exchange during summer vacations. After my parents divorced, I didn’t want to work for my dad. Besides, I wasn’t interested in working for a domestic company. I accepted a position with Cook Industries, which had started trading grain in a big way. However, a friend who worked there warned me against taking it. “We’re having trouble,” he told me. “There are other places to learn the business. You’ll be fine.”

I joined Cargill in 1971 and did grains in Norfolk, Virginia, trading corn and soybeans during the Russian Great Grain Robbery. The company executives knew I wanted to work in international trade and offered me a position in the sugar business they were setting up in New York with Rick Frame and Robin Lawson. I stayed with them until 1977, when I left to join Phibro, who were keen to pick up on Cargill’s rapid and successful sugar trading model.

How did you transition from grain to sugar?

When I started in sugar, I said, “Okay, let’s sit down with a map. Where are the major consumers? Where are the major producers? How many are owned by entities in the business that handle distribution directly?”

At Cargill, I learned that commodity trading is a logistics business involving getting the commodity from point A to point B. However, the real business is trying to create a niche where you can build exclusivity in client relationships. This is how you control profit margins in the trading business.

However, the key to profit and growth in any trading business is a tight and trusting trading team anchored by partners working together. My initial team formed at Cargill and expanded in Phibro with the inclusion of Daniel Kilbert in white sugar and George Testard in raw sugar and grain strategy. We also had an experienced trading team in Geneva with new trainees and Robin Lawson’s expertise in managing the hedging positions.

When I started in sugar, Russia bought Cuban sugar, but who else was in the game? There was the US quota, but that wasn’t interesting. It was primarily a tender business, and you had to pay top dollar for the supply. Still, countries like the Philippines and Thailand had free and open sellers with whom you could build relationships.

I realised I needed people in each country who understood local conditions. Are the crops good? How is the weather? Is there a problem at the port due to congestion?

Agents are important. Your relationships at origin are crucial because those are the guys who have the problems. And when they have a problem, you’ve gotta finance them.

Thailand was interesting because you talked directly to the mill owners, which was more personal. Until the government took over, the situation was similar in the Philippines.

Once I learned the business, Cargill could offer clients good logistical and loading terms, premiums for late loading, advance or postponed shipments, and other benefits, such as respect for contract law and contract performance.

Can you give me an example?

We made sales in Romania, but the buyers came to us and said, “Okay, well, we can’t take the sugar now.” We agreed to extend the contracts and amend the terms. There was a slight premium, but we locked in additional forward contracts for the following years. Suddenly, we had pyramid trades and dominated specific regional markets. We could then focus on originating sources of nearby supply to increase the trading margin.

Later, we did that in Philip Brothers in places like East Germany and Poland. It’s how you build up and control the tributary trade flows.

How else did you build the business?

We got the best Brazilian agent, Costa Pinto, and learned what was possible from a Portuguese mentality. We started buying 100,000, then 250,000-mt contracts, then 500,000 mt clips in long-term contracts and then up to one and a half million mt. Suddenly, we had an evergreen contract business source that made us dominant from Brazil to the Mediterranean, the Baltic, and the Indian Ocean.

As the Brazilians converted more from raws into whites, we built up our expertise in white trading. It allowed us to go into Europe, buy restitution (export subsidy) at public EU tenders and add European whites to our trading book. The producers gave us flexibility if we handled the relationships right. Europe became a key origin point in our book, as did Brazil, the Philippines, and Thailand.

We then focused on the destinations. China and Russia had problems when Cuba had a bad crop. The traditional colonial brokerage/trading companies were firmly implanted in Russia, and we couldn’t do anything there for a long time. As such, it was essential to build up greater capacity and capabilities that others didn’t have.

At Phibro, I met a couple of kids doing a PhD at Columbia. They studied weather and photo imagery, correlating satellite imagery with crop statistics. They needed money to finance their projects, and we funded them twice. They devised a way to digitalise black and white satellite photographs to determine the moisture content, size and density of the crops, the number of husks of corn and the density of the field in terms of productivity. They then compared the results against previous years to produce crop estimates and projections. Phibro financed their degrees and became a client of their information. It is funny how things turned out as Cargill finally bought their operating company many years later.

When I moved to Phibro, I knew I needed an advantage – an edge. I realised that the weather was the key to a strong trading portfolio, and so I went to work on “weather”. I studied it every day. The traditional colonial trade houses were full of ex-army guys who had no clue what the weather was like. However, we on the trading desk could see what was happening to the crops in Cuba and Russia. I realised they had a problem ahead of the rest of the market and before it impacted price.

I went to the Russians with our Moscow office manager, Ken Davis, and we showed them the statistical changes in the supply/demand data and our analysis based on the severe weather during that growing season. I sold them a first tranche of 700,000 mt and a second tranche of 400,000 mt.

It also attracted the attention of the Chinese. Richard Elman was our guy in Hong Kong, and we went together to Beijing. We shared our analysis of the beet crop in North China with them there. It showed a significant deficit in sugar beet production, and we eventually sold them 600,000 mt.

The following year, Cuba and Russia had an even worse crop, and I went with a significant offer and long position in August of that year, ready to trade. I hated being that long, but I was 80 – 90 per cent sure the Russians were gonna bite my arm off. After much prep work by our guy in Moscow, I went to see them. They told me they would wait until November or December, when they would have a better idea of their crop, before deciding to buy. They were playing me.

I went home, liquidated the flat price position, and told everybody in the company not to trade a single tonne to Russia. Later, when I was on a trip, one of my partners sold them 50,000 mt. I was furious!

We sold our physical long sugar position to firms who sold to Russia and were desperate to cover the physical sugar. We made a significant profit on those sales.

How important were your partners to you?

Partners are cornerstones. Although they may not contribute financially daily and may never develop an excellent trading strategy, the trading desk and I could bounce ideas off them. They understood the business, our capabilities, and sources and could spot everything wrong with a trading strategy.

George Testard once said that you had a thousand ideas a day. Of these, 999 were useless, and one would go on to make tens of millions of dollars. His job was to discard the 999.

I loved having George in the room because he could analyse anything. He also helped us avoid losing money, a big part of trading.

Why did you leave Phibro?

I got fired three times in my career, not because I lost money but because I was too harsh on people. Yes, I was tough. I was in the office at 6 a.m. and worked until late at night, expecting everybody to work just as hard when the work was there to be done.

While at Phibro, I fired the Chairman’s grandson because he was taking extra days on weekend trips to Israel to see his girlfriend. I had warned him that his behaviour was wrong and a poor example for others. I talked to his grandfather, who encouraged me to be strict with him. Still, it was probably a mistake to fire him. I was fired a year later with the Chairman’s approval.

Why did Phibro exit the sugar business?

Sugar trading is a logistics business. Phibro failed because they didn’t support their origination and didn’t appreciate the value added in trading and logistics or the significant value added in the destination part of long-term trading relations.   A couple of mills in Guatemala and Costa Rica came up for sale, and I put it in front of them. Phibro said, “No, we don’t want to own sugar production assets.”

Phibro never got close to the downstream distribution’s long-term business potential of developing the trade flow between producers and consumers. They preferred to buy FOB and sell C&F and leave the trade there. I talked to them about ships that could load white sugar in bulk and discharge it in one-tonne or 50-kilo bags. I worked on the project for four years, but Phibro didn’t have the entrepreneurial shipping department to take this on. Ex-brokers ran it. They were good. They got time charters and everything else when we needed them, but they minimised risk and never invested in speciality ships to enhance trade to destination clients.

And then you moved to Gill & Duffus.

I did my initial j/v deal with the Chairman, who was looking to buy ED&F Man. I talked him out of it. I told him I could build a similar Phibro team in the US and Switzerland, and we could trade sugar and grain with a line of credit without the massive debt load of buying an existing trading company with bad contracts/debts. G&D liked the idea of trading sugar like they traded cocoa. They were the largest in that sector.

I started with Pat Atkin, the Chair of Gill & Duffus, and we had a great ride, earning more than cocoa one year. Sadly, Pat fell sick and became distracted. When he stepped aside, a financial guy with no understanding or trading experience replaced him. He surrounded himself with cocoa traders he knew for advice and to look over our shoulders. I started to get tough with the cocoa guys. It wasn’t going well for any of us. I told them we would find someplace else to go.

Long term, Gill and Duffus didn’t have the thrust to develop the business.

Did you ever think about moving to Marc Rich?

I used to talk to Marc Rich all the time, and we got along well. I liked the guy, and I respected him. You could speak to him about everything related to the world, global risk, etc. He understood everything but was always slippery on legal issues, cheating and looking for an advantage to increase his margin.

He wanted to dominate businesses but didn’t have a moral code as strict as mine. Because he operated in Switzerland, he would do things that broke the law. He wanted me to work for him. We talked and talked. Finally, one day, I told him that I didn’t like the direction he was taking the company and broke off the talks.

So you decided to go into inter-trade brokerage?

My wife and I love London, and we think it’s a better place to raise kids than the US. So we put them in school, and they were fine.

After shaking many trees, I wanted to stay visible but keep my hands clean. So, I decided to try brokerage for a while, staying reliant and near the game. However, I thought people would be more accommodating if I helped them with strategy. I even hoped they might include me in their strategies more as part of a parallel relationship.

You then transitioned back from brokerage to trading.

It was the best thing I ever did. I partnered with two Dutch guys, ex-bankers, to create blended sugar products and import them into the EU. We bought sugar in Africa or other localities with preferential duties into the EU, blended it with another project mix, usually cocoa or a citric product, and sold it to chocolate or soft drink companies. Coca-Cola couldn’t do business in some parts of Africa, but I could. There was a period in Ethiopia when our blended sugar products were outselling coffee as an export.

I had been in the global trading business but made more money selling one-tonne bags in containers mixed with a bit of cocoa. They were 97.3-5 – 98 % sugar. The margins were huge. With margins like that, you could always make money. You could fall asleep and never worry. We had 5,000 containers afloat at any one time, keeping the business going for 5 or 6 years.

In sugar, like all commodities, we had large price swings that narrowed or widened the difference between world price sugar and preferential EU or USA domestic sugar. At times, countries like Ethiopia and Sudan had to import to export, so when the world price rose above the domestic EU price, the business no longer made sense without hedging and risk management.

I estimated we needed $50 million in credit lines to continue the business and manage a hedging programme, but my partners felt uncomfortable and refused. They were bankers and had a problem with hedging.

Do you still trade?

No.

One of the fascinating things about your career is that you’ve gone from these mega deals with Brazil, Russia, and China to trading niche markets that nobody notices. Are niche markets the future of trading?

While at Phibro and Cargill, I focused on global trading and was always interested in building supply niches. We did this in the Philippines and Thailand and became Brazil’s dominant sugar company.

I learned my philosophy at Cargill, which is based on logistics and supply distribution. But how do you make money in logistics and distribution and then create profit niches and expand them? You enlarge the trading envelope into an exclusive relationship and improve the product ranges.

I wouldn’t pay off producers for physical sugar contracts. As a result, I often had problems in many producing countries with single-selling entities. Central America, the Dominican Republic, and Thailand were exceptions.

What were the biggest, the best, and the worst trades you made?

The first Russian sale was my biggest trade. The second Russian sale should have been even bigger, except the Russians played a silly game, and I never traded with them again. So, that was perhaps my worst trade.

One of my most profitable market trades was in the US market. A series of crop failures in Florida prompted the US to import a large amount of sugar under the US quota. I realised there would be too much sugar when the crops recovered, so I started working on a strategy for when the worm turned. I expected the domestic price to plummet and the US government to cut the quotas dramatically.

Over the next 12 months, I bought a bunch of cargoes and stuck the sugar in domestic warehouses. And when the USDA reduced the quota, prices rallied, and we made a fortune.

I could not have done it without Paul Farmer’s help. Paul was a young trader who grew up to become a “partner” type of reliable college. He focused on the US market and the prime buyers. He not only improved the strategy of the trading desk but, as had been done elsewhere, started to work with lower-grade raw sugar crystals that were higher in sucrose and had a value close to that of white sugar.

Producers in countries like Mexico were cranking crystals out of the production mills for domestic consumption, but the quality was not good enough for refined industrial sugar markets. Paul saw the merit of getting food manufacturers in the US and elsewhere to modify their facilities to take the crystal raws. This was a win-win situation that significantly boosted our volume and market share.

After I left Phibro, Paul continued to build his business. However, there were all sorts of limitations in the Phibro business model, and he eventually left and set up his own shop. He is still leading the way in US supplies of raw, white and crystal sugars to happy manufacturing companies.

Cargill, Phibro and Gill & Duffus have all exited the physical sugar market. Why do you think that is?

They didn’t want to invest in logistical downstream distribution networks.

Sugar is a challenging market. Cargill tried to develop downstream distribution and refining, but they chose the wrong countries. Syria is an example.

When they had the right machine, they never had the right guy to run it. There are umpteen examples of people who have failed to develop their potential in commodities, especially trading.

Would you have preferred to be in the oil market? Would you have made a lot more money in the oil market?

I grew up in a grain family to be in the grain business. I went into the sugar business because it was a speciality business, and it was the first job offered to me to take me abroad. But it was within a grain company. Some people argue that Cargill revolutionised the sugar business. Once in sugar, I wasn’t moving back to grain.

What advice would you give someone joining the commodity trading sector today?

Preferably, have an education and training in engineering. Be a problem solver. Read books. Read history, study geography, study raw material and product development, where imports are needed in net deficit countries, and study weather. Weather is everything if you’re in soft commodities. It’ll tell you everything. And it doesn’t hurt to take a class or two in law. Every trading department needs someone who is legally trained.

You need filters in trading, people to filter your ideas. Strong partners can be the best. That’s why, for me, partnerships are the key to good trading companies. If you start trading today, get a strong partner or two with money and limit your risk.

Big corporations are unreliable. I got frustrated in the big companies because I never knew whose hand was on the tiller. I took my frustration out on the young people on the trading desk. I was mean to them and got fired for it. I made mistakes like all people. I was hard to get along with, which is my solid regret.

When starting a business, always look for a trading advantage. Start slow and small, and get your training in a niche business.

Finally, you’ve gotta go find yourself because, ultimately, it’s your trade.

© Commodity Conversations® 2025

 

You are the managing director of Olam Agri, based in Dubai. Could you describe your career so far

I come from a farming family, which sparked my early interest in commodity trading. Unlike many industries where success depends on the product, in this field, the individual makes the difference. That idea fascinated me.

After completing my MBA in India in 1999, I began trading veg-oil at a domestic cooperative but wanted an international career. Olam offered me a role in Nigeria, where I spent two years in the bush originating cotton, sesame, and cashew, managing logistics and learning risk management from the ground up. I then moved into rice and sugar imports, building distribution networks and solving challenges in an underdeveloped banking and communication environment.

After four years in Nigeria, personal circumstances led me to return to India, where I joined ICICI Bank to develop agricultural lending programs. It was exciting, but I realized banking wasn’t for me. I rejoined Olam in Rotterdam, trading hardwood from Central Africa and Brazil into Europe. Adjusting to Europe’s fragmented business cultures was a steep learning curve, but it taught me how to navigate diverse markets.

In 2010, I moved to Dubai to trade basmati rice across the Middle East. While I built strong relationships, I found the credit risks and volatility outweighed the rewards. Feedback from the market encouraged me to shift focus to more liquid commodities like wheat and corn, which I’ve been trading successfully since.

Today, as Managing Director of Olam Agri in Dubai, I lead a team focused on balancing innovation and risk in this dynamic industry.

What prompted Olam to enter the grain markets?

Previously, OLAM was reluctant to enter the grain space. The company felt that the market was saturated as the big players had a dominant position and large fixed capital deployed in assets.

In 2011, there was an opportunity to acquire Crown flour mills in Nigeria. a destination milling business where none of the big boys participated, but the margins were still healthy. We believed we had an edge over the big trading companies as they didn’t operate in Africa, especially sub-Saharan Africa. We had expertise in these markets and believed we could do better than them.

The historical investors in these markets – mainly Indian or Lebanese families – were well established. We realised that trading was our differentiator. We could trade globally, which could differentiate us from the existing investors in those markets – at least in wheat.

What were your first moves, and how did the business develop?

To trade successfully we had to participate in origination, we decided to enter Russia. At that time, it was not competed out. It was an emerging origin.

We were at a confluence with the milling investment in Nigeria and the beginning of origination. I brought in some Middle East customers, and we made our first bulk shipments.

We continued trading wheat, but our customers also wanted corn. To trade wheat, you must understand corn. We were already following the corn market, so we started trading it. We realised that Brazil would be our most significant origin and bought FOB for the first two or three years.

The Black Sea and Brazil grew rapidly in export volumes as their production costs were lower than in the U.S., Canada or Australia.

When we started milling in Nigeria, nobody wanted Russian wheat, but we milled Russian wheat, which was $150/mt cheaper than HRW. Our clients in Asia said they couldn’t trust Russian wheat. Even the Iranians used to pay $10-15 /mt more for German wheat over Russian wheat. The consumers realised the milling quality of Russian wheat after trials over multiple seasons (of course the bug damage and other aspects of Russian wheat also improved over this period as the industry grew). The same happened with corn, with clients increasingly accepting Brazilian corn at the expense of Argentinian and U.S. origin.

So, you took advantage of a structural shift in trade flows as Brazil and Russia increased market share in wheat and corn. But didn’t the other established players also see that shift?

Crops were increasing significantly, and the market needed somebody to take the liquidity. When the farmer comes to sell in Brazil, he sells two to five million MT weekly, and nobody wants to hold this kind of position. The consumer doesn’t want to buy when the farmer wants to sell. You must offload the risk; we found that few people can manage that risk.

Nidera and Noble were faltering, as were some of the smaller players. It helped us to acquire talent. The Japanese trading companies had made investments in Brazil to compete with the likes of Cargill or Bunge. They had bought slightly disadvantaged assets and were not doing well. There was overcapacity, and margins were faltering.

How did you scale up?

We learned a lot between 2011 and 2015: how to manage risk, price, and trade relative value. We were doing it at a small scale but were growing in confidence, building the infrastructure regarding systems and processes. In the early days, we used to struggle to get a global position or to get the mark to market right, but by 2015, we were in a position where we could scale up.

We were a small startup within Olam. Few believed we could take on the established players and trade at scale. They thought we could do one or two trade flows into Nigeria or maybe a niche destination like Iran, but we would never win in the Brazil to China or Black Sea to Indonesia markets.

Companies like Dreyfus or Cargill have developed a keen sense of what moves the market. They see information quickly and act on it almost intuitively. Only five or six companies see a global picture, not a regional one. They have the systems to bring information together and make trading decisions based on it.

Many companies in our business are regional companies. They don’t see a global picture. We could do it because we had an international team in place. We had Brazilians in Brazil, Chinese in China and Russians in Russia. Our global team is present across all the major markets and origins.

The European experience dealing with various nationalities and different kinds of people helped us build a multinational, multicultural team that could operate as one unit and have confidence in each other.

We gained the confidence that we could operate at the same efficiency and speed as the established traders. We were on an even playing field with the five or six global companies. Once we had that confidence, we could grow our volumes. We now have sizeable presence in most important Grain, Oilseed and Oil trade flows, putting us in the top six or seven companies which operate globally.

I am satisfied with what we have achieved in a competitive industry where the incumbents have so much heritage.

Do you trade freight?

We quickly realised we could not trade in volume unless we took positions on freight. We now have an excellent freight trading team which does internal and external business. We trade all sizes and types. We do voyage, time charter and ownership. Not many companies in the grain business transitioned to being freight traders.

Do you trade soybeans as well?

Yes, we trade soybeans, it is a very important product and flow for us. The market has liquidity and a big role for a trader like us.

How do you see your business progressing from here?

Size and scale (presence in important geographies) is an advantage in our business. We want to be big, not because we want to plant a flag, but because size gives us the insight and information to trade. At size our market does pose some liquidity and operating risks as well, so we must be very careful on how we size our business and what is the sweet spot.

Our markets are always evolving, never a dull moment. While we have guiding principles, we cannot assume any of our plans to be fixed. We continue to expand our destination footprint in processing and value added, we will also seek out opportunities where we can expand trading and origination profitably.

You have moved from being a local trader in Nigeria to a global trader. OLAM has made a similar move from a local West African trader to an international trader. How easy was it for you personally to make that move, and how easy was it for OLAM to make that move?

It is not easy. Many things must fall in place.

OLAM has two parts: the traditional businesses and the businesses we started later. By the time we started the grains business, all the necessary ingredients were in place for us to be a global trader. We began as a global trade house, while OLAM started as a local trader, transitioning to become international in coffee, cocoa, cotton, etc.

Olam initially grew because many companies didn’t want to take the risk of local origination in Africa. They didn’t want to go into the bush and buy from the farmer and do all, let’s call it, the hard work. Olam occupied that space and grew in it. Once we better understood the supply and demand, we said, okay, we can go further and become a trader. That’s how that started.

The grain business started from the other side. Our grains business started and remained global, and we didn’t want to go local. Going local is not an exemplary deployment of capital. The upstream footprint in our other businesses is much higher than in ours.

The transition from local to global is difficult. You must look at world market parity and forecast outright and relative prices. It involves insight and a change of mindset, working with people across the globe, trying to see which insight is valuable and which isn’t. It comes from experience.

What about margins in the grains business? Are you more dependent on volatility or a margin at every stage of the supply chain?

Our grains business is dependent on volatility and market making. Volatility often dislocates price relationships; we can say the trader provides liquidity to the market where there is limited participation. By trading inefficiencies and mispricing, you’re making the market more efficient. The object of a trader is to make the market more efficient so that the farmer can produce what the world needs and the consumer gets it at the lowest price.

Many people think that commodity trading is a high-margin business. However, the commodity business’s hallmark is keeping costs down because margins are so low. We bring efficiency to the supply chain. We transport the commodity from the farmer to the consumer at the lowest price and lay the risk off in the markets. That way, the consumer gets something at a low cost.

We often sell to the end consumer cheaper than we bought from the farmer. We can do that because the financial markets allow us to lay off risk. We can sell to the consumer when the absolute prices are lower. We can do this as we have relative value trades, hedging, and many other ways to manage price risk.

The margins in our business are low. A one per cent margin would be fantastic.

We earn good returns on equity because we leverage. We use bank finance. If someone were to look at this business straightforwardly, they’d ask, “Where’s the margin?” It’s probably the lowest margin business in the world – even negative margin if you were to look at trades in line. New people don’t enter because they don’t see a margin. The margin is hidden in how you trade. It’s a very efficient industry.

What’s your USP? What differentiates you from the other big boys in the grains and oilseeds business?

Our global footprint and global talent differentiate us from regional players like Chinese crushers or Black Sea exporters. It delivers us trading insight.

What sets us apart from the larger companies is that, for good or bad, we don’t have their history. They have significant investments in origination and the supply chain, these provide them with immense advantage in seeing crop flow and gaining insight, this is hard to replicate, however it is also very capital intensive has a high bar of return to meet the threshold. Whether they provide returns or not, changing those models is challenging.

Compared to this we have limited capital deployed and can choose which part of the value chain we want to participate in. We choose what we believe will give us the highest return on capital and equity. We can pick and choose where we go.

Do you have a trading philosophy?

We like risk. Our business is based on taking and managing risk

We like relative value risk more than outright or flat price risk. You know when there is mispricing regarding spreads, time, qualities and origins. We like liquidity.

SALIC (Saudi Agricultural and Livestock Investment Company) has a 35.43 per cent shareholding in Olam Agri. ADQ (Abu Dhabi Developmental Holding Company), a sovereign wealth fund, has an indirect 45 per cent equity stake in LDC. COFCO, a Chinese government company, owns a majority of COFCO International.

Is the quest for food security driving these state agencies into the agricultural commodity business?

It is one of the reasons. Still, the world is more food secure than in the past. We are getting better and better at providing food to the world. We can produce more food than the world needs.

However, there are still concerns over insecurity based on geopolitics, state boundaries, Export bans, taxes, tariffs, and non-tariff barriers exaggerate this uncertainty.

Are you worried that state intervention might make the markets less efficient?

We already see that with the Russian export tax on wheat. It is changing the way we trade. It would be better if it were a free market. The Russian farmer essentially pays the tax and doesn’t get a fair value for his produce.

Government intervention is a fact of our markets. Governments have always interfered with the free and fair functioning of markets. The geopolitics are such that I fear intervention will increase, making it harder for traders. Or it might give more opportunities to traders depending on where they are positioned and how they see it. We’ll just have to trade around it and with it.

You’ve had an exceptional career in the commodity markets. To what do you attribute your success?

Learning from the markets, being humble, seeking the unknown, and not risking it all on one single idea or trade.

However, perhaps the most important thing is having a very capable and diverse team in terms of culture, nationality, and trading style. It helps us see markets from different perspectives. It is challenging because you cannot sit in a cocoon and feel your view is correct. You’re challenged every day, but all those challenges help us do better.

Could a young person joining OLAM now have a similar career to yours?

Young people joining now are luckier than when I joined; we had a tiny canvas. We learned at the grassroots, and I didn’t have the opportunity to trade the markets till I was ten years into OLAM. I think people joining today have the culture and the canvas.

Still, anyone joining the company must realise that they will be challenged and humbled. You will be on the floor. Does that excite you, or does that leave you cold? Do you feel defeated, or do you think, no, I will get up and fight another day?

Does Olam have a training formal training program, or do you just sit on the desk and learn from people around you?

We have a mixed approach. We have the apprenticeship model where you follow a trader or an analyst and work through the ranks. We combine that with some formal training in a classroom session where senior traders or others in the organisation do various modules. Still, I would say 80 per cent of the learning happens in the apprenticeship model.

© Commodity Conversations® 2025

This week, I asked Google Notebook LM to create a podcast on wheat. I sent them some of the stuff I had written over the years, and this is the result.

The power of AI continues to astound me. However, it made one mistake in the podcast: the New York warehouse that blew up contained ammunition, not wheat. However, I will forgive that one misunderstanding.

I hope you enjoy listening to the podcast as much as I enjoyed putting it together.

I wish you all a healthy and happy holiday with your loved ones. I will be back in January.

First, congratulations on your book. It’s short, to the point and thought-provoking. You mentioned reading over 3,000 newspaper articles to research the book. Where did you source them?

There is an online newspaper database in Australia called TROVE. I searched for two keywords, war and wheat, from the beginning of World War One to the end of World War Two. By the end of it, I had to start wearing glasses.

How long did it take to write the book, and how did you do it with a full-time job?

It’s hard to say when I started writing the book. I didn’t start with the intention of writing a book. I started with the intention of understanding the real drivers of markets. I began looking at the most significant price drivers over history and noticed that the hefty price moves happened when governments got involved, especially when there was a military conflict. That’s how I got to look at the two world wars.

I did a little bit every day, in the early mornings and sometimes late evenings. There were times when I stopped for a month or so and lost track of where I was heading.

Are you Ukrainian by origin?

When the Soviet Union collapsed in the early 1990s, my folks moved from Russia to Australia, where I was born. One granddad was born in Ukraine, and the other in Russia. Their situation was part of my interest, whether at the front or the back of my mind.

Did you enjoy writing the book – and what was the part you enjoyed the least?

What I loved most was going through the old newspaper articles and discovering things we weren’t taught in school and university.

For example, before joining World War One, the Americans supplied the British and the French with weapons and food. There was a large warehouse in New York harbour full of weapons that the US planned to ship to the Allies. The Germans sent their secret service to blow it up, and the explosion was so large it partially blackened the Statue of Liberty.

I also enjoyed learning about the shifting relationships and alliances between countries during the wars.

At the same time, there were a lot of dreary articles. Ironically, reading the articles was the most enjoyable and, at times, least enjoyable part of writing the book.

What’s your target audience for the book?

My target audience starts with farmers; they need to know what happened during past conflicts and how a future one could impact their businesses. The same goes for flour millers, grain traders, and the government.

My book has a clear message: Australia produces massive grain surpluses, but it may be unable to export them during a conflict.

Are you planning a follow-up book?

I’ll take a breather and assess the world. I will think about it later.

As I mentioned, I found your book thought-provoking. I have three historical questions. The first is, did Churchill launch the Dardanelles campaign in WWI to reopen the route to Russian grain exports? Did 8,700 Australians lose their lives at Gallipoli for wheat?

In 1914, Russia accounted for around 20-30 per cent of global wheat exports, about the same percentage as now. While access to Russian wheat was a significant factor, it does not appear to have been Churchill’s primary motivation. Churchill’s main reason for authorising the Dardanelles campaign seems to have been primarily strategic and military, but food played a role.

UK food prices were running rampant in the months prior. At the time, Argentina was a significant source of wheat for the British. However, their stocks started running low due to strong exports and poor production. Meanwhile, Australia’s last crop was drought-stricken.

There is a debate among historians as to why Nazi Germany invaded Russia. Goebbels, Hitler’s Minister of Propaganda, wrote that the Nazis opened the Russian front for ‘grain and bread’ to capture ‘the vast fields of the east (which) sway with golden wheat, enough to nourish our people and all of Europe’.

The invasion had catastrophic consequences for both sides. Over 2 million German soldiers and 24 million Soviet soldiers and civilians died. Soviet agriculture was severely disrupted, with grain production falling from 95 million tons in 1940 to 29 million in 1942.

If the Nazis had never made that dash for Russian wheat—if they had never invaded the Soviet Union—they may have won the Second World War. Is it possible that we all owe our freedom to wheat?

While there were ideological reasons for the Nazi invasion of Russia, there were also significant logistical reasons. Before Germany invaded, Russia supplied Germany with substantial volumes of commodities, including food. Before and in the early stages of the war, Germany paid Russia for its resources with hard currency. Eventually, when Germany’s financial resources started to wear thin, Germany could only offer German Marks in exchange for commodities. At this point, the trade in commodities between Germany and Russia began to dry up. Before Germany’s invasion, journalists were writing that Germany was stationing troops on Russia’s border to bend it into sending it more resources.

Ukraine, known as the “breadbasket of Europe,” was a primary target.

Germany didn’t have many options. Where else were they going to get food? When they invaded France and Poland, they confiscated their grain reserves. Farmers had no incentive to plant a new crop as they knew the Nazis would confiscate their harvests.

I read with interest how the Australian government had to nationalise the grains industry in the second year of World War One. They had a considerable surplus of grain that they couldn’t ship. Do you think that the Australian government intervention was successful during the wars?

Their first goal was to ensure that the agricultural industry survived. Prices would have collapsed if the government had allowed the free market to function. Following the harvest, grain would have made its way to the port, piled up, and started to rot. Shipping availability had fallen substantially. Farmers would not have been able to repay their bank loans, and many would have gone bankrupt. The country had substantially more grain in both world wars than it could consume.

The Australian farming sector had a critical role to play. Australia supported and maintained its farming sector to support the Allies when shipping became available and to feed the millions of starving Europeans when the war ended.

If you let an industry like farming fall apart, it takes a long time to rebuild.

The world of wheat has had two major crises in the last five years: COVID-19 and the Ukraine war. Which caused the most disruption in supply chains?

The global grains industry handled COVID-19 well compared to other industries. Grain continued to flow. Governments considered agriculture a critical sector, and farmers kept farming. Apart from a few minor hiccups, exports continued.

Some countries implemented export bans to ensure sufficient food for their populations, but in most cases, these were quite limited and didn’t last long.

The war in Ukraine was more disruptive. Russia’s invasion caught a complacent world off guard regarding how significantly supply chains rely on everything working perfectly.

The conventional wisdom is that the supply chains worked well during COVID-19 and the Ukraine invasion. The markets solved the problem, while government interventions such as export bans were harmful. Do you agree with that conventional wisdom?

Export bans were not a positive, but the number one priority of any government is to feed its population. Countries may cooperate during peacetime but compete for scarce resources during famine or plague. We saw how countries outbid each other for masks and vaccines during COVID-19.

Large importing countries will pay any price during a crisis to keep their populations fed.

We’ve discussed the market impact of wars and government intervention, but what about the weather? Isn’t the weather more important than anything else?

Unless there is a hurricane or flood, weather impacts prices, at least initially, quite gradually. Prices gradually increase as market participants learn about an adverse weather event and understand its impact. Government intervention is often abrupt and can catch the market off guard. So, it probably depends on the timeframe. During a crisis, government intervention can impact markets much more than weather.

Let’s move to the current situation. Russia appears to be reestablishing government control over wheat exports. How is that affecting world markets?

People are questioning to what extent governments can influence prices. Before and during WWII, the International Wheat Agreement attempted to balance supply and demand through export quotas and planted areas. It appears the BRICS may now be trying to do something similar. They’re trying to influence the market by changing the supply of grain. People are concerned.

However, it hasn’t worked in the past except for short periods. In the medium term, other exporters will increase production if prices rise. So, prices may initially rise if Russia and Brazil get together to reduce planted areas. However, everyone else will grow more the following year, and Russia and Brazil will lose market share.

But, yes, it impacts when negotiating with one government seller rather than multiple private sellers. Buyers will have less bargaining power if the Russian government monopolises exports.

There was talk in the past of having an OPEC for wheat.

Even OPEC is struggling as there are more oil-producing countries, including the US, than in the past. Many countries grow wheat, and its production is less concentrated than oil. If Russia and a handful of other countries try to reduce area, other countries will increase production.

Oil production depends less on the weather than wheat does. You may reduce the area to support prices, but your production may collapse if there is a drought. The primary beneficiaries of an OPEC for wheat would be the countries that stayed out of it.

Trying to manipulate price by manipulating supply rarely goes well.

We saw Russia donating cargoes of wheat to some developing countries, effectively using food for political ends. Wheat is weather-sensitive, particularly as you head into harvest. Would you say wheat is the most politically sensitive and weather-sensitive of all commodities?

Politically sensitive, yes. Weather sensitive, probably not. Wheat is produced over a wider geographical area than some other commodities. I think that commodities like coffee and cocoa may be more weather-sensitive. A frost in Brazil can skyrocket prices. Disease in West Africa will send cocoa prices soaring.

But yes, wheat is politically sensitive. It is what goes into many people’s daily bread. Didn’t the Romans coin the phrase “bread and circuses”?

You state in the book that the objective of a domestic wheat industry isn’t simply to make money. It also exists for the national survival during times of crisis. Isn’t there a contradiction, as farmers’ interests may not always align with the national interest?

Following WWI—and even now—many countries produce agricultural goods with government support, without which they would be unviable. Governments were so scarred by the food shortages during both world wars that they realised it’s not simply a question of agricultural economics and making money; it’s about food security.

For example, economically, it doesn’t make sense for some European countries to produce as much food as they do, but from a food security point of view, it does.

What are the things you learned that surprised you when researching this book?

My biggest takeaway is how little the Australian sector has changed since the two world wars. We’re just as dependent on ocean freight as we were back then. If there were to be another crisis, the government wouldn’t have any other option but to do what it did in the two world wars. Yes, we have better farming practices and faster ships, but the fundamental structure of our industry hasn’t changed much. That was an eye-opener for me. Fundamentally, the international market still relies on the Black Sea, and Australia relies on ocean freight.

My second takeaway is that the biggest winners in a conflict – if there are any winners – are those who own the freight.

The biggest challenge for Australia in both world wars was that we didn’t have the shipping capacity to move our grains and oilseeds out of the country. Without government intervention, grain prices would have collapsed. It doesn’t matter how much you produce. Prices will decline if you can’t get your harvest out of the country.

A good example is 2021. Australia finally started to have good crop years after a three-year drought. I saw that we would produce a record crop, but our logistics system couldn’t handle it; we couldn’t export all the grain. When Russia invaded Ukraine a year later, global grain prices skyrocketed, but ours didn’t keep up. We fell to a substantial discount to international levels. Now imagine the extreme scenario where there is barely any freight available.

So, what is the solution?

A domestic biofuel industry would allow us to utilise some of the crops we produce and make us more fuel-secure. Over 95 per cent of our fuel comes from overseas. If we can’t get enough fuel, our whole economy grinds to a halt. A biofuels sector could help achieve our climate goals by reducing fossil fuel emissions while providing at least an element of energy security during a crisis.

Biofuels can act as a new source of demand for farmers to ensure that they keep producing. They can also act as a buffer, a reserve in times of crisis. You can switch the biofuels industry off, at least temporarily.

Building a biofuel industry during peacetime is easier and cheaper than during a war. The materials or workforce may not be available during a broader crisis or conflict.

If you look at the biofuel industries in North America and Europe, they wouldn’t have existed without government support, whether through subsidies, mandates, or both. I don’t think it will be any different in Australia. The government will support one if it decides it’s a national security issue.

There are other ways to increase domestic demand, too. If the Australian agricultural sector used more grain to produce meat, the country would need fewer ships for their exports during a broader conflict. It takes 12 kilos of grain to create one kilo of beef. Exporting 12 times less quantity is a lot easier. Admittedly, they would need refrigerated ships.

Is the Australian government ready to do that?

I ended my book with a quote in the Sydney Morning Herald from 1938:

“The curse of Australia is procrastination. We debate things in Parliament eternally, but we hardly ever do anything. I am afraid the awakening will be a rude one.”

© Commodity Conversations® 2024

Good morning, Martijn, and welcome to Commodity Conversations. You have had a 27-year career with Cargill. From 1997 to 2006, you traded grains and oilseeds and then moved to the cocoa desk, where you became head trader. In 2022, you moved internally to spend one year as Cargill’s Trading Technology Adoption Head before leaving the company in 2023. After such a successful trading career, why did you leave active trading?

I had been wondering what I wanted to do over the next five or ten years. People asked me how I could still sit at a trading desk after so many years, but trading was my life. The years flew by quickly because I genuinely enjoyed them.

Covid changed everything. Working from home was a reset for me. I have a daughter of 14 and a son of 12. My relationship with my son wasn’t that great. It was okay, but not as good as my relationship with my daughter. I thought it was him, but during Covid, I realised it was me. I had spent too little time with him.

I had always prioritised trading and Cargill. I was never there for him for the school events. During Covid, I saw who he was and met his friends. I thought, ‘Okay, am I going to spend another 5 or 10 years on that trading desk doing the same thing?’

The whole Covid situation was a blessing in disguise for me.

Don’t get me wrong. I was passionate about trading. I was used to the lifestyle and loved what I was doing. But I realised that I loved my family more.

Was it a difficult decision to make?

Yes. I always saw myself as Mr. Cargill, but suddenly, I realised I needed to think about myself and my family.

But trading was all I knew. After 25 years of trading, I thought, ‘What the hell am I going to do to make the change I want?’

I talked with people in the company who were higher up, and they offered me a position in technology. I had been involved in a technology project for my team and had enjoyed it. I leapt at the chance of doing similar projects across the company.

The one year I spent in technology was a soft landing, allowing me to prepare to leave Cargill without endangering my 25-year career. I had a superb manager, and it was a fantastic period for me. I liked being still in Cargill, but outside of the trading side. It gave me a year to think about what I wanted to do.

What did you want to do?

I wanted to move away from the trading desk. I wanted to move away from a corporate environment. I wanted to stay involved in the commodities industry.

I have always enjoyed interacting with youngsters, and I realised that one of the things that I liked more than the market itself was developing people.

Then I thought, ‘Okay, recruiting, that is what I like.’ But it took me about a year to figure it out. I also came up with the idea of the podcast.

So, I thought, you know what, there is a space for me in the industry as a recruiter. I have a wide network. I know what I’m talking about. I’ve been a trader for 25 years. I speak the language of the client and the candidate. I have a genuine passion for people.

Do you enjoy what you are doing now?

Yes. I enjoy assessing someone’s profile, conducting interviews, and advising clients on who to hire and who not to hire. I’ve been doing this for over a year.

I enjoy making my own decisions and running my own agenda. I can choose who I work with. I especially like talking to young people; they keep me updated with the latest technology and what is important to them.

After leaving the corporate environment, I realised that independence and entrepreneurship give you freedom. It doesn’t mean that things are easy. You must do everything on your own, and it can be lonely. Even so, I wouldn’t want to trade that anymore for the certainty of a fixed salary and being in a big organisation.

Do you also give risk management advice?

Yes, I also advise on risk management. These past two years, the coffee and cocoa markets have gone up in flames, and people have become more aware of their risk exposure.

Many companies now realise that they lack a proper, formal risk policy and have limited knowledge of derivatives and risk management practices. These companies call me and ask me for advice. I like this part of my business because I can share my experiences from working at one of the best companies in the world. I explain how I have survived and thrived through market cycles.

It is the beautiful thing about Cargill. It opens doors. It gives you a stamp of approval for two reasons. The first is integrity. Everyone knows you have integrity if you’ve been successful in Cargill for a long time. And secondly, yeah, you’ve learned from the best.

Did you get withdrawal symptoms from the market when you stopped trading? Was it a drug for you?

I enjoyed it for an extended period but was also consumed by it. Now, I look at the market but don’t need to trade it. I can just analyse it. I no longer feel the pressure of having a position or not having a position.

Do you still follow the cocoa markets?

I find the cocoa market intellectually interesting. It is niche – small compared to grains and energy. Everyone knows chocolate, but few people understand what’s behind it.

Over the years, I’ve learned how the market works, but I’m still passionate about it. I write about it regularly on LinkedIn, and every two weeks, I write a cocoa market report on Vesper, the commodity insights platform.

I once started to write a book about cocoa to complement the ones I had written on coffee and sugar. But I abandoned the project. I found it too depressing. Cocoa has everything wrong with it: deforestation, child labour, land rights, producer poverty and corruption. Is it a supply chain without hope?

There is incompetence, corruption, and mismanagement in origin countries, often at the expense of millions of farmers and their families.

One of the most tragic things about this industry is that it has changed very little. It’s why you see the frustration during all these events discussing sustainability. Corruption is the elephant in the room, but no one dares to mention it.

Where does all the money go? It’s not spent on cocoa infrastructure, and farmers are not benefiting from recent high prices.

What happened last year has been years in the making: years of corruption and underinvestment. The Ghana government should conduct mass spraying programmes to tackle pests and diseases, but it hasn’t done that for years.

During my travels, I always wondered why nothing was changing. The problem is that in societies where corruption is a business model, people have no incentive to change.

How did you cope with that as a trader?

I had a pragmatic approach. The world is a complex place. You have challenging geographies where morals, rules, and life views differ dramatically from those in the West. The media condemn traders who operate in these areas, but they have no idea that much of what we consume in the West originates from these places.

If the consumer demands these commodities, someone must move them from where they are grown or mined to where they are consumed. Traders make that possible by applying enormous capital and taking risks. In doing so, we provide employment in origin countries and processing factories.

Commodity trading is one of the most critical pillars of the global economy. Without commodity traders, there would be no energy, food, or metals. Energy, metals, and agriculture build, move, and feed the world. I have always felt proud of the job I did and the company I worked for. We operated with integrity in challenging circumstances. Journalists don’t realise that trading companies are full of good, ordinary people who do their work with honesty and integrity.

Commodity trading companies must make money to survive. None of them are too big to fail. No one will save us like they did with the banks in 2008.

We have nothing to hide. We should be more open and show our customers, the media, and potential and actual employees what a great business ours is. The problem is that the media looks for the nasty sides, constantly condemning and always sitting on their moral high horse.

ADM left the cocoa sector for reputational reasons, but Cargill stayed. Cargill is an ethical company, and it’s always surprised me that Cargill continues to take the reputational risk of remaining in the cocoa market. How do you account for that?

I do not believe ADM left cocoa for reputational reasons.

Cocoa is a tricky business; trading and processing cocoa and manufacturing chocolate is complex. Cargill likes complex businesses. We always said that complexity gives opportunity. I greatly respect ADM, but they are less sophisticated than Cargill. They prefer the grain and oilseed business; it is more straightforward.

In my years, it was rare to make much money on processing. We usually made the money by merchandising, trading around assets and taking positions. I believe ADM struggled with that. They are more processing-based and do less trading. You can’t run a cocoa and chocolate business just processing. The margins are too thin.

Another point is that cocoa is capital-intensive.

Is cocoa an ingredient or a commodity?

Cocoa is a commodity, but it’s also sometimes called the anti-commodity, meaning it lives its own life. It’s not correlated to anything. To some extent, it’s an attraction. Hedge funds sometimes put cocoa in their portfolio to reduce correlation and risk.

Cocoa is not a standard product like soybeans. It has many different origins and grades. There is not one type of cocoa.

You discover that when you want to make a cash conversion and deliver physical cocoa to the futures market. It makes a difference whether you deliver beans from Ivory Coast or Cameroon. Still, it also makes a lot of difference when you use them in your factory, whether for cocoa processing or semi-finished products, for powder, liquor or chocolate.

Does having so many different grades make it easier to manipulate the market – if there’s a lack of deliverability, for example?

Yes, it has been an issue for many years. I moved from trading soybean oil on the CBOT, a well-regulated market, to trading cocoa on LIFFE. Everything I learned in Cargill about being a good actor and compliant did not exist then in the cocoa market. The business model of several players was to squeeze or corner the market at the expense of bona fide hedgers.

If a futures market loses its role as a risk mitigation tool, you cannot contract forward business. You kill the market.

Is that the main difference between grain and oilseed trading and cocoa trading – that it can be squeezed?

There are many differences, and I think any market can be squeezed.

When I started in cocoa, there were no delivery limits. It was a problem. Now, there are delivery limits. Traders can’t take delivery of a large amount simply to squeeze the market.

What are the other differences?

One critical difference is that cocoa is a tree crop; you can’t quickly grow more after a price hike.

What also makes it different? There’s no alternative. There’s no substitute. When I was trading vegetable oil, and I sold to Unilever for their margarine business, I knew that at specific price points, they would switch from soy to rape or vice versa. In cocoa, there’s no substitute.

Cocoa is not a staple food like wheat, corn, and soy, yet demand is price inelastic. People like to have this small, affordable luxury treat. It helps that it’s still cheap. You can still buy a € 1 chocolate bar. It is rare for chocolate demand to decline.

Cocoa shares some similarities with coffee, with 60 to 70 percent of the global supply coming from two countries—Brazil and Vietnam for coffee and Ivory Coast and Ghana for cocoa. However, this makes it more risky.

What is also interesting is that you have two futures markets. If you look at coffee, you have robusta and arabica. In soybeans, you have beans, meal, and oil futures. In cocoa, you have only beans.

Most commodity traders trade the basis, the price differential between the physical commodity and the corresponding futures month. Cocoa is unique in that you trade a ratio, which is a multiplier versus the futures market, not the difference. It gives an entirely different dynamic with implications regarding hedging and your flat price exposure.

What does it take to be a good trader? What would you look for if hiring a trader for your desk?

The first thing I look for is a natural interest in financial markets. I always ask people what kind of news interests them, what the first website they open in the morning is, and what newspapers they read. I also ask if they have any exposure to the financial markets. Is it an ETF? Is it in individual stocks? Is it crypto? I ask them about current Fed policy and their opinion on it.

Why is this so critical? It goes back to what I said earlier about why I stayed 25 years on a trading desk; it naturally interested me. If you are interested, it doesn’t cost you energy. It gives you energy. If you are not naturally interested, you can manage it for a while, but not for long. Trading is so intense you can only endure it if you’re naturally interested.

You want a debate on a trading desk. The life of a trader, to a large extent, is reading, thinking, debating with other naturally interested people, and then coming to a conclusion and translating that into a risk-bearing position in the market.

You need a risk appetite. I once talked with one of the leads in Cargill, Geneva. He said, “There are people who trade not to lose, but we want people who trade to win.” People may find this strange, but having an appetite for risk does not mean gambling.

The best traders are great risk managers and consistent. It’s not about having the market right for one or two years; it’s about being right for 25 years.

Curiosity is vital. You must have an open mind and be pragmatic, not dogmatic. However, you must be confident to endure the market telling you you’re wrong.

The best traders I know are modest, mundane people with no ego. Not having an ego also means not taking things personally. When you’re wrong, you get out. It’s not a problem. You move on. The market doesn’t care about you or what positions you have.

As a trader, you will never have 100 or even 90 per cent certainty or conviction. But you must be decisive. Otherwise, you’re never going to do anything. So that means that there will be some mistakes, and you get that with experience. You must have the confidence to trust your judgment. It’s not arrogance. It’s not ego. It is simply what you need as a trader.

You also need to enjoy an environment where you are constantly challenged by the market and your peers, by youngsters who are more intelligent than you or have technical skills that you don’t.

I hired intelligent young people who were better in certain areas than me because I wanted them to grow and develop. Hiring smart people creates a team that constantly improves and stays relevant. It’s great when young people come up with an entirely different analysis from yours, and you realise you were wrong. It may be corporate slang, but you want a growth mindset, not a closed one.

Lastly, you need to accept that you must put the hours in.

Is letting ego get in the way the biggest mistake a trader can make?

Too big an ego can mean too big a position. When people are successful, they start to overestimate themselves. They think they are invincible.

Underestimating your competitor is a mistake. There are a lot of smart and intelligent people in this world. You must respect the person on the other side of the trade. I always thought, ‘Okay, if I’m doing this, someone else is doing the opposite. Why are they doing it?’

It is a mistake to surround yourself with yes-men.

Another is underestimating how technology can change a market. On the one hand, you can say that markets never change because they are run by human beings with human emotions, such as greed and fear.

I did a podcast with Tom Kopczynski and discussed why Blenheim closed. One reason was that they didn’t adjust their model. They had a purely fundamental model, and there are times when fundamentals don’t play a role; systematic traders and algorithmic hedge funds dominate the market.

Some of these hedge funds are technology companies. They hire people who can code and capture massive amounts of data.

That brings me to my next question:  to what extent have the futures markets become computers trading with computers? Then, this follow-up question: Will AI take over trading while humans are left to do the physical merchandising?

Most managed money categories moved to algorithmic black-box trading long ago, a trend that has been in place for years.

There is a difference between trading and execution. Algorithms execute 90 per cent of all trades in the futures markets. Still, I think you refer to fully automated algorithms that not only execute the trades but also analyse the market and create the game plan. We looked at this at Cargill and realised that AI made it inevitable. Computers can quickly analyse a vast amount of data and see correlations that a human wouldn’t find.

You must read The Man Who Solved The Market if you haven’t read it. Renaissance Technologies has been doing this for years. They hired the best scientists and mathematicians, but AI may be able to do a similar job in the future.

However, if everyone has access to the same computing power, they will trade their strategies till they’re arbitraged away. It’s the same as in market-making and high-frequency trading. At some stage, margins will decline because people see free money, and free money doesn’t stay long in the market.

Speculators are essential because they provide liquidity, but depending on the market size, they can also eventually obstruct. That is where regulation comes in. We have moved past having free, unregulated markets where the interest of a few can destroy a whole market.

I wanted to return to your comment about respecting the person on the other side of the trade.

It is essential to come out of your bubble regularly, your internal bubble from being in your company with your views and how you do things.

Cargill is one of the best companies in the world. We were everywhere. We had the best information and some of the best people, and I often felt my market view was correct. It was the truth. But then I would spend time in London with the cocoa community, and I thought, ‘Shit, I should be here every day.’

Once you are outside your bubble, you hear many different views. It’s what makes a market. You listen to things about the market and people’s positioning. The funny thing is that you understand that the trade is sometimes not even with a company; it’s with a person.

If you know a person, you know how they might try to influence you. You also know how they react under different market situations. What have they done in the past? You can have an S&D, but someone with a massive position can be more critical than your S&D.

You also learn to see whether someone is in a good or bad position. You see it in the person and hear it in their voice on the telephone.

The problem when trading against machines is that you cannot call them on the phone. Still, it is essential to understand what drives them. That was one reason we started implementing systematic strategies at Cargill. We wanted to know why they were positioned like this. What did they see?

What is one piece of advice you would give to someone wanting to get into the commodity trading business?

Listen to the Strong Source Commodity Podcast. You will hear true stories from people who are not trying to sell you anything but genuinely want to share their knowledge. Listen to the podcasts and be honest with yourself. Yes, it excites me. It interests me. I can’t stop listening.

But if you think, well, actually, I’ve listened to maybe three, and I need to push myself to listen to a fourth, then do some soul searching as to whether commodity trading is for you. Perhaps it is not your cup of coffee.

And what one piece of advice would you give to someone on their first day on a trading desk?

Ask questions and make sure that you understand the things that the others are discussing on the desk.

A trading environment differs from anything you have experienced at university or online. It’s not unusual to be lost and feel you’ll never understand what is going on or being said. Every trader started not understanding things.

Trading is such a different environment. You do not learn to think like this at university, let alone on an online course. There are good courses in Rotterdam and Geneva, but you learn trading by doing.

© Commodity Conversations® 2024

My latest book, Commodity Professionals – The People Behind the Trade, is now available on Amazon.

I do way more learning than teaching.

You spent 12 years with Louis Dreyfus. Where were you based, and what did you trade?

I did a two-year graduate training programme in London that involved energy, ethanol, sugar, and coffee. I then spent nine months in Paris on ocean freight. At the end of the programme, I had a choice between sugar and freight. I chose freight and moved to Connecticut, taking my girlfriend and young daughter. We were about to get married and had complications with visas and stuff. But we figured it out. I spent ten years with LDC’s Ocean Freight Department, including a stint in Melbourne setting up a new freight desk.

Whilst we were in Australia, my brother committed suicide, and we had to return to the UK. I mention it because it has been a defining factor in my career over the last 15 years. Dreyfus was terrific in helping me out with everything. They could not have treated me better throughout the process, especially my boss at the time, Kevin Grimes.

We spent six months in the UK and were supposed to return to Melbourne, but it was too far from my parents. In hindsight, I probably should have gone back, and we would have figured it out, but everything was so raw at the time.

We went back to what we knew, the safety of the US. We had a home there. Over the next few years, Dreyfus promoted me to run the desk in North America. There was a lot of upheaval and politics in the company at this time, not only on the freight desk but also companywide. I felt that I no longer belonged there anymore.

I left Dreyfus. I had had ten fantastic years with them, but the last two were challenging. I was devastated to leave. I had naively thought I would stay at LDC for my whole career.

Do you think that your brother’s suicide affected you in your decision to leave and the way you looked at life?

My brother’s suicide affected everything and changed everything. Looking back, I wasn’t the same person, nor was the company. It’s still surreal. I get emotional about it fifteen years later, just explaining it to you.

Okay, let’s move on to happier times. You left LDC to become head of sugar trading at BTG Pactual. It seems a random move to go from freight to sugar.

I was never supposed to go to BTG to be the head of sugar. I knew Larry Greenhall, BTG’s head of grains, oilseeds, and sugar, from his time at Dreyfus. I had spent a lot of time in grain and oilseed supply and demand meetings trying to reverse engineer the physical freight business.

We had many arguments at Dreyfus between the trading desks and the freight department. I felt traders showed a lack of trust in the department when they disputed the freight rate without understanding what freight is or the components that go in it. I told them that if we want to get better at doing C&F business together, I’ll learn your business and teach you mine. And that is what I did; I learned their business.

I went to BTG to be in a junior beans position. However, they were looking for someone to head their sugar desk, and all the other candidates were probably more expensive than me. So, they gave me the job. We did some good things, but ultimately, the business plan was not what I had signed up for, and it was a good time to leave.

You then moved to COFCO to be head of the corn desk.

COFCO/ Noble Agri had approached me previously, and we had had a couple of meetings to discuss building a business. A few years earlier, they had once flown me to Hong Kong to discuss me becoming their head of freight, but we couldn’t agree on terms.

I was still talking with them when I realised that my days at BTG were numbered. Corn has a lot of embedded freight involved in the physical business, and spread trading was something I picked up during my time at LDC. I knew freight like the back of my hand, and the company had two fantastic corn traders in Kim Kurstjens and Testuya Watanabe, so the team worked well. It was some of the best trading I’d been involved in.

You then joined Freepoint as managing director and stayed for six years. Is it easier to be a managing director or a trader?

Although I had an MD title at Freepoint, it was more like being a senior trader or a desk manager in a more established trade house. A traditional managing director is more like managing a team of traders—just like a coach in a sports team. We were a new department in Freepoint, purely prop trading for me and managing some junior traders.

Freepoint is probably the most professional company I have ever worked for, with some of the best and most talented people I’ve worked with. We made a few mistakes trying to get the business model right inside an energy company. Still, it is difficult as the margins are few and far between in agricultural businesses without assets. Other energy companies have made similar mistakes. They are different markets. Things can get lost in translation unless you have someone who fully understands what you’re trying to do.

I spent six years with Freepoint. It wasn’t a bad stint, but I wanted to return to Liverpool to be with my family. We had had plenty of upheavals already with family, and I was spending too much time away from the kids.

You then moved from being a managing director and head trader to becoming a consultant and a non-executive. How easy was the move to an advisory role?

It’s not for everyone. You’re still making many independent decisions, but you are making them for yourself and your family. It’s a different kind of pressure. There’s no stability. There’s no salary. You must prove to people that you’re good at what you do, and they need you. It requires a lot of effort and motivation. It’s much harder being a consultant than an MD.

But there’s a lot of freedom. There’s a lot of excitement. And you start to realise that everything you do in life is a trade, whether going long sugar or jumping on a plane to go and speak to someone, hoping to win some business. You’re still making decisions; you’re still planning; you’re taking a bet on yourself, hoping it pays off.

You have set up LMH Academy and become involved with John Moore’s University in Liverpool. Can you explain that to me?

I’ve worked with Danny Donachie, a top performance coach, for the last two years. I brought him in six months before the end of FreePoint. I wasn’t happy with the way I was performing. He was previously with Everton Football Club as a medical physio and now works with many top sportspeople and high-performing businesspeople. He’s been in and around goal-orientated athletes but had no view or clue of trading. During that process, we got into the why? Why am I doing what I am doing? Why am I not at my best? Why am I not happy? What’s missing?

Looking in from the outside, I was successful with a big title at a big company, but it couldn’t have been further from the truth. I realised that I was happiest when I was part of a team, learning from them and teaching them. I was happiest when I was developing, mentoring and coaching people.

The sessions were heavy and dark, as a lot of personal tragedy had to be shared. I probably cried for the first seven sessions. It can make some people in the industry uncomfortable when you talk about these things to people, but it has indeed been life-changing. Danny and I have become very close.

A Welsh friend, Chris Lewis, who is well-connected to the Liverpool community, runs the Big Onion programme. This local business incubator has 15 to 20 businesses inside it, mainly sole traders, but in the past 3 or 4 years, he has helped close to 200 start-ups. We talked about raising aspirations in the local area and bringing commodities back to Liverpool.

We approached John Moores University, where I am an alumnus, but they said they had no budget and couldn’t fund the programme. I told them I would fund it myself if they gave me a room and their name. They agreed.

We presented to 50 accountancy and finance undergraduates and 25 master’s students. Five master’s students and 11 undergraduates signed up, and we started with 16 in the group.

It then started to go crazy. So many of my contacts and friends in the sector wanted to help and contribute their time to the programme. We are now in our second year, with 29 students. Two out of the first group took job offers as brokers; one became a coffee trader; one joined a freight company, and another a Commodity Contract management business. Ultimately, we had nine job offers for the students in the first year.

The programme is not yet well established, and it’s been a bit of a struggle to get noticed by some of the more prominent trading companies, but that will improve. We are already seeing companies getting interested in what we are doing. They are asking if we can develop a programme for their in-house talent. It potentially leads to another career or business opportunity for us.

When you look at your students, can you tell which ones will be successful in the commodity sector – and how do you tell?

I think it’s the curiosity, drive, ambition, and asking ‘why’—always asking the next question. None of us were born the finished article. If you’re a professional, you’re continuously improving. Even you, Jonathan, with all your years of experience, are improving as long as you stay curious and driven.

For me, the definition of success is far more about getting the best out of the individual than just about the company. As a manager, there is a balance between managing individuals and organisations. I care more about the individuals because they are the ones who take care of the business. If people are unhappy in the workplace, they will get in the way no matter how hard you try to improve the business.

How would a young person know whether they would be a good trader?

Having the necessary skill set does not guarantee success, and having specific traits does not necessarily mean you’ll be a successful trader.

There are moments in your career where you can be crushed. Every top trader goes through anxiety, fear, and sleepless nights. You get stopped out of a position. You get fired for losing money. It is when you will find out what you’re made of.

I can get my students to the front door and give them the tools and the education to guide them in their careers. You can practice all you want, but until you are in an actual game situation, you don’t know if you are any good.

You have to say, “I love what I am doing.” I’ve made a mistake, but I’ll figure it out, learn from it, and change. The market will always be there. There is always tomorrow. Maybe you are at a different company, but the market continues, and there is always a new contract month to trade.

It’s highly competitive when you work for a big trading company. You think the P&L is essential, and you know each level is getting more challenging. It’s an ego thing; it’s almost an image thing. You experience shame or guilt if you fail to live up to your or the company’s expectations or if you have the perception of not being successful.

Every young trader falls into the trap. Do you make enough money compared to the profits you make for the company? Is your bonus more than this person’s and that person’s?

You don’t appreciate success properly because you measure success by the biggest number. It couldn’t be further from the truth. The most significant numbers we ever made were when the market gave us the opportunity. I’m sure companies are breaking records this year trading cocoa, but is that because people are trading better or because of market conditions? We are too quick to rate our success on the absolute number as opposed to how well we did in the market conditions.

There are professions within trading organisations other than trading.

Our objective at John Moores is not simply to produce traders; it’s about producing commodity professionals. It’s about working with individuals who come in the door with talent. We say, “Listen, even if you want to be an accountant, you’ll be a better-paid accountant in commodities than in the NHS. And you’ll go around the world and meet amazing people.”

I’m not getting that message across as well as I would like, as some of the most talented people in year one turned down better-paid jobs in commodities and took less-well-paid jobs elsewhere. They were unsure and maybe a little afraid of commodities. They were primarily women, and they didn’t believe they belonged. It was a tragedy because four or five got first-class honours degrees; they would have been phenomenal in the commodity business. They just felt the sector was not for them.

Is trading a young person’s game?

No. Experience counts for a lot. Energy is a prerequisite. If you have the energy to get up and go at 55, you can still compete with the younger traders.

That leads me to my next question. I’m an old guy, and it’s been 12 years since I’ve been out of the markets. How do I stay relevant and up-to-date?

Jonathan, how many people have you met who are very good but didn’t ever want anyone to get past them? They suppressed talent. And how many people loved to see talent surpass them? You must ask yourself the question: Are you elevating or suppressing talent? If you suppress it, then they’re going to go around you. They’re going to go past you. If you elevate talent, they will always come back to you. You’re always stay relevant as long as you’re elevating talent. It is something we are working on closely with Andy Kerr and OCR commodities, who share the vision of growing opportunities for the next generation of talent.

I’ve been covering burnout a bit. Do you have any advice for people who can’t cope with their jobs?

Burnout happens when you push yourself to do things you don’t want to do. I find I have limitless energy when doing something I want to do. You don’t create the boundaries of anxiety and fear that you have when you do things you don’t like. There is no wasted energy when you are doing what you love.

What three pieces of advice would you give to a young person on their first day on a trading desk?

First, be patient. Don’t put too much pressure on yourself as, at some point, you’ll fail, and there’s nothing worse than feeling a failure when you’ve only just started. Don’t be worried about where you are right now. We all have moments where the photograph is not what we thought it would be. There are many ways to get where you want to get to.

Second, use your eyes and your ears far more than your mouth. Be observant and trust your instincts around that observation. If you feel something is not right, then say. Speak last.

Third, be authentic. I know it’s a cliche, but the best things happen when you’re true to yourself. You can’t be something you’re not. You can try hard to change it, but if you don’t honestly believe in it, you won’t have that internal feeling of success.

And what do you tell your students?

I tell my students two things. First, you are never too young to teach and never too old to learn. The second is that you are where you’re supposed to be. By that, I mean you shouldn’t be too quick to make judgments about yourself when you fail – accept that you’re here for a reason, probably to learn something. Likewise, when you have success, bloody celebrate. Don’t move past it too fast, expecting the next celebration to be even bigger. Take stock of where you are; enjoy and appreciate it.

Fernando Alonso, the F1 driver, recently said he is driving better than ever because he’s enjoying it. He said he was never satisfied when winning because he was always trying to get to the successive win. It struck a chord with me.

Anything you want to add?

I’m open to collaborating with people and organisations to help more kids get jobs. It’s not about money. Anyone in this industry for 20-odd years has probably made a decent living; we must help those struggling or having difficulties finding opportunities. We can do better with this, especially with getting more women in the industry. Let’s do it.

© Commodity Conversations® 2024

My latest book, Commodity Professionals – The People Behind the Trade, is now available on Amazon.

You’ve had an exceptional career as a trader: twenty-one years with Cargill, eleven with Louis Dreyfus, and two with Solaris, all in senior trading or management positions. Do any highlights come to mind out of that wide and long career?

I was the first member of my family who did not join the family agricultural business, which was already a century-old business. Cargill gave me a tremendous foundation in the commodity trading business. Dreyfus allowed me to be more of a manager and a business builder. Solaris allowed me to be entrepreneurial, taking advantage of my previous experiences and trying to visualise the future of the business.

Which did you enjoy the most?

I have lived in five countries and enjoyed every one of them! I have worked for three different companies and enjoyed every one of them!

Cargill was a period of discovery during which I developed the skills I needed for trading and discovered a new world. After Cargill, it was more about developing executive skills and finding a vision. However, the deep learning experience and the people I met in all three companies were unforgettable. Without Cargill, I would not have been able to do the others, but I enjoyed the journey in the following steps as well.

What different commodities have you traded, and which was the most challenging?

I have mainly traded grains and oilseeds, but also fertilisers and molasses. Right. There are all kinds of vegetable oils and seeds in veg oils. Intellectually speaking, oilseeds are the most complex, but complexity is always an opportunity to make things simple. It was the most challenging for me.

Which commodity do you prefer?

My background and fascination with geopolitical issues make me feel attached to wheat. Fragmentation in the world wheat trade has led to two tiers of trading: the global traders and the regional champions. The international trading companies have lost market share in wheat to smaller specialised companies in different origins and destinations.

Russia accounts for almost 30 percent of the total world wheat exports. The country has a tremendous influence in the market, but international players cannot participate in that flow. I expect this situation will endure. This fragmentation is even growing. We’ve had decades of globalisation, and now we’re getting fragmented, if that’s the correct word. It has consequences on trading and shipping, behaviours, and even ethics. It is continuing to have a significant impact.

But it’s not just Russia. China is buying more beans from Brazil and less from the US and is worried about tariffs and export bans. Are politics shaping the global agricultural trade more than in the past?

Yes, the world has split into two blocks. Some talk about the South versus the North, while others talk about the East versus the West. I favour the differentiation between a Western mentality and a BRIC+ mentality. We are in a new world order.

You’ve had a fantastic career. Would you expect a young person joining the business now to have a similar career?

There are tremendous opportunities for the new generation in our sector, but it depends on their attitude. We in the northern hemisphere mostly live within our comfort zone, while those in the southern hemisphere are more ambitious. Attitude is going to make the difference.

You mention attitude. What other factors, characteristics, or character traits make a good trader: ambition, risk appetite, and curiosity?

Common sense is essential, and by that, I mean asking, “Does this make sense?” Don’t take things at face value or fall prey to conventional thinking. Always ask that next question.

Other critical pillars include curiosity, respect for others, and a periscopic holistic view from different angles. Don’t stay deep and comfortable in your submarine. Raise the periscope and look all around.

What about relationship skills? Communication skills have always been essential for merchants and traders, but we’re entering a world of AI and platforms. Are relationship skills still critical?

They are fundamental if you want to understand and communicate with other people. Most successful people are good communicators – and not just in our sector.

How would a young person reading this know if they have what it takes to be a good trader?

I have hired many people in my life with many different characteristics. There is no one model. When I interviewed a candidate, I always tried to decide whether they were the type of person who, when watching a football match, would be interested in the coach’s strategy and tactics, not only how beautiful a goal is. Everyone is born with specific skills, but you must develop those skills. Trading is a science but also an art.

How important is an analytical mind?

Essential! Numerical skills are critical, but I encourage people to be interdisciplinary. The best trader that I have ever seen had a history degree. Your background doesn’t matter if you have analytical skills.

Is trading a young person’s game? Are traders like soldiers? And if they are, is it a function of risk assessment and appetite?

No, there is no age for being a trader. However, vision is not enough; you must implement that vision. You are a dreamer if you don’t execute your vision. Perhaps people are less willing to implement their vision as they age.

Let’s move on to what you do now. How do you spend your days?

First, I advise different companies on logistics, distribution and trading. Second, I do business consultancy on specific sectorial issues. Third, and this is what I enjoy the most: I teach. It pays the least, but it doesn’t matter. Money is not the priority on this one. It’s how I can give back to society what I got from society.

I currently lecture in different business schools and lead the agri commodity programme for managers at the Spanish University of IEB in Madrid. I also give tailor-made programmes for specific big companies. I call this the Trading Academy and adapt the programmes to different companies’ requirements and needs.

What do you specialise in when you’re teaching?

We teach people to think like traders regardless of their businesses. For instance, a procurement team in any sector can benefit from thinking like a trader regarding fundamental supply demand and risk, all within the macro environment. We teach people to structure their thinking to identify the indicators that will change the game. A trader’s way of thinking applies to any business in life.

What’s the toughest part about teaching?

There is no tough part of teaching. The only challenge I often face is when people think in black and white. There is frequently no yes or no answer to a question. The answer is usually, “It depends.” The world is not black or white, but it is not grey either. It is glorious technicolour.

The most challenging part of my work is understanding the programme requirements when I tailor-make a program for a specific company. I can build the course structure only when I fully understand a company’s needs.

Do you work alone?

I work with a close-knit group of colleagues and friends. I have the luxury of having these tremendous professionals who help me structure and deliver a programme. Our objective combines academic passion, intellectual curiosity and profound experience. We want to bring value to the participants of our courses.

One thing that bothers me is that I am an old guy who writes about business for young people. How do you and I stay relevant and up-to-date?

It is essential to keep in contact with people. You must talk with them – network with them. You can’t learn everything from the Internet. I learn enormously from my students. That’s the thing about teaching. I learn as much as I teach.

What about employees? How do they stay relevant during their career? Should they take time out for further education, or should companies offer more in-house training?

Both alternatives are valid. However, our mindset must be to learn constantly, not just when we are on an in-house or external course. Learn from your colleagues. Admit your weaknesses and work to improve them.

But don’t concentrate on your weaknesses. Concentrate on your strengths. Successful people leverage and grow their strengths, which differentiates them from less successful people.

Will AI help?

Traders spend 70 per cent of their time collecting and organising information and data and 30 per cent of their time thinking. AI will allow traders to think 70 per cent of the time and collect and organise data and information 30 per cent of the time.

Pablo González, my co-author of ‘Thinking 2020’, often recalls what his father used to tell me, “Pedro, you work so hard you don’t have time to make money.” AI should allow traders to work less hard and hopefully make more money! It is a common problem.

The other common problem is that you don’t have time to sharpen your sword when you’re working so hard. This leads to burnout. I genuinely hope AI will give us all more time to think.

Which university courses would you recommend a person to study to get into commodity trading?

As I mentioned earlier, it is not a critical issue. As a manager, I hired people with different educational backgrounds on purpose, but they all needed to think critically and analytically.

You must find out if trading is your thing. Take your time to look for an internship. If you know someone in the sector, seek them out as a mentor.

What three pieces of advice would you give to a young person on their first day on a trading desk?

• Behind every problem, there are many opportunities.
• Take the time to specialise in something that differentiates you from others.
• You have two ears and one month. Listen twice as much as you talk.

© Commodity Conversations® 2024

My latest book, Commodity Professionals – The People Behind the Trade, is now available on Amazon.

 

My book, Commodity Crops and The Merchants Who Trade Them, was recently voted one of the top ten commodity books ever.  To celebrate, I asked Google Notebook LM to produce a podcast on the book.

Google described the book as a compilation of interviews with prominent figures in the agricultural commodities trading sector. The author, Jonathan Kingsman, explores the intricacies of this industry through dialogues with individuals representing major companies such as Cargill, Bunge, Olam, and Wilmar. Each interview, organized by commodity (wheat, corn, rice, soybeans, palm oil, sugar, coffee, cocoa, cotton), delves into the history, production, trading dynamics, and challenges specific to each crop.

The book highlights key themes such as the impact of globalization, technological advancements, sustainability concerns, and the changing role of traders in a rapidly evolving market. It provides a comprehensive overview of the agricultural commodities market, emphasizing the interconnectedness of factors such as supply and demand, geopolitical influences, and the increasingly important role of technology. The book aims to shed light on the complex world of agricultural commodities, offering insights into this essential industry’s strategies, challenges, and prospects.

Commodity Crops – And the Merchants Who Trade Them is available on Amazon

1/ Could you share what you do today and your career journey so far?

My first foray into the sugar market was long ago at Louis Dreyfus when they told me to move from the Grain Department to Sugar. I was initially a grain analyst, covering UK wheat and barley. LDC asked me to sit at the sugar desk and learn about sugar. Somebody threw me the Kingsman report to read. It was my first introduction to the sugar market!

I’ve been in sugar analysis for around 30 years, working for various tradehouses and hedge funds. I am now an independent analyst for DNext, a digital platform based in Switzerland. We aim to simplify data collection and provide more efficient ways of analyzing the market. We cover agricultural commodities such as grains, oilseeds, and sugar.

2/ How have information providers evolved over the years regarding what they offer?

Everybody’s always been looking for the basics of crop analysis and trade flow data,

Data providers have moved downstream and now do more crop survey work. Your data provider now has a better handle on crops than in the past when only tradehouses had the complete overview of crop numbers. People can now access crop information more readily than in the past.

The provision of trade flow data has remained relatively unchanged over the last twenty years. In the future, I see room for a digital platform to consolidate trade flow data and make it more straightforward to assemble a consolidated trade flow.

We’re trying to forecast crops, and I’m unsure how big data helps. You’ve got to get your feet dirty, get out on the ground, and try to understand acreage. That’s where errors can occur. You don’t notice the switches from one crop to another if you’re not on the ground. Fundamental analysts have a critical role and will, hopefully, survive!

3/ Did you ever trade sugar?

It’s a difficult question to answer as it depends on what you mean by ‘trade’. If you work for a hedge fund, which I did, you provide trade ideas to a portfolio manager and then to a team of execution traders. There have been brief periods during my career when I have run a small proprietary book. It can be fun, but you can spend too much time screenwatching. So, I’ve always stepped back, providing trade ideas for the execution traders or the portfolio manager. People not involved in the business struggle with the difference between a trader and an analyst. I think the best traders are also analysts. So it’s a merger of the two.

4/ What’s a common mistake people make when analyzing the sugar market?

They are not spending enough time understanding consumption. It’s easier to follow crop numbers. Consumption involves a detailed analysis of monthly stocks, imports, and exports. It’s hard work. The other problem is that people consume white sugar, not raw sugar; monitoring white sugar trade flows is more complicated than monitoring raw sugar trade flows. The key to success is to get to grips with the white sugar balance sheet, which flows back into a raw sugar balance sheet. It’s been a massive issue for the last seven or eight years, with consumption falling in the developed world.

The challenge with consumption data is that an error can multiply through your balance sheet. A considerable demand shock, like COVID-19, can impact the quality of your consumption analysis. Consumption sets a good analyst apart from a bad analyst. The trade house analysts are often the best as they see the white sugar flows.

5/ What advice would you give someone struggling to stay on top of sugar market analysis?

I would advise them to continually seek new information and to stay on top of production, not just in the key countries but in the top twenty producers.

Get out into the field, meet producers, and build relationships. One thing that has benefited me over the years is that the trade houses I’ve worked for have allowed me to travel. To understand production, you must get out there and meet cane and beet producers. The meeting at the mill is vital to understanding the market.

If you are a trader and expect your analysts to build a decent balance sheet, take them with you when you meet your clients in the supply chain.

My daughter Charlotte conducted this interview as part of the ECRUU series of podcasts.

© Commodity Conversations® 2024

My latest book, Commodity Professionals – The People Behind the Trade, is now available on Amazon.

A Conversation with Eddy Fay – OCP’s representative in Argentina

During my recent discussion with Michael Sebag, I was interested to learn that Morocco has 70 per cent of the world’s phosphate reserves and that OCP, a Moroccan state-owned company, is the country’s sole exporter of phosphate-based fertilizers. I wanted to learn more. My friend and mentor, Ivo Sarjonivic, put me in touch with Eddy Fay, OCP’s representative in Argentina. We set up a Zoom call.

Before speaking with Eddy, I asked Chat GPT about Morocco’s fertilizer exports. After the call, Zoom sent me an AI-generated summary of our conversation.

I am unsure that old folks like me fully understand how AI is revolutionizing every aspect of our lives. I have, therefore, taken the unusual step of sharing with you, with only the most minor edits, the Chat GPT answer to my question and the Zoom summary of my conversation with Eddy.

I have added, in Part Three, a brief note on the Haber-Bosch process.

One of the great things about my life now is that I continually learn new stuff. My conversation with Eddy was doubly fascinating. Not only did I learn more about fertilizers, but I also learned more about the power of AI.

Don’t worry; I will revert to my usual (human-generated) format for future conversations.

Part One: Chat GPT answers my question about Morocco’s fertilizer exports.

Morocco is one of the world’s largest exporters of fertilizers, mainly due to its vast reserves of phosphates, which are essential for fertilizer production. The key types of fertilizers that Morocco exports include:

1. Phosphate-based fertilizers:
   • Monoammonium Phosphate (MAP): Commonly used for crops that require high phosphorus levels.
   • Diammonium Phosphate (DAP): One of the most widely used phosphorus fertilizers, containing phosphorus and nitrogen.
   • Triple Superphosphate (TSP): A concentrated form of phosphate fertilizer.
2. Nitrogen-Phosphate-Potassium (NPK) fertilizers: Morocco also exports NPK fertilizers, which are compound fertilizers that combine nitrogen, phosphorus, and potassium to provide balanced nutrition for crops.
3. Phosphoric acid: Although not a direct fertilizer, Morocco exports large quantities of phosphoric acid, which is used as a raw material for producing phosphate fertilizers.

Morocco’s fertilizer industry is dominated by the state-owned company OCP Group (Office Chérifien des Phosphates), which controls most of the country’s phosphate resources and fertilizer production. OCP exports fertilizers to markets worldwide, including Europe, Latin America, and Africa.

Part Two: Zoom’s AI-generated summary of my conversation with Eddy.

Sugar and Grains Industry Experiences

Jonathan first reminisced about his time at Cargill working in sugar, first in London and then Minneapolis for two years before moving back to London. Eddy discussed starting with Cargill in grains in Buenos Aires before training in Geneva, working in molasses in Minneapolis, and then fertilizer in Tampa.

Fertilizer Industry Merger and Mosaic Formation

Jonathan and Eddy discussed the history of the US fertilizer industry, specifically focusing on the merger between IMC and Cargill Fertilizer in 2004 to form Mosaic. Eddy explained that the merger was driven by Cargill’s need to invest a significant amount of resources to grow, and instead, they chose to form a company with IMC’s assets. This decision proved profitable for Cargill, as 65 per cent of Mosaic’s yearly profits was similar to all of Cargill’s earnings.

Jonathan asked Eddy about Mosaic’s dominance in the US fertilizer market and its domestic production. Eddy clarified that while Mosaic is the largest producer, the market can buy domestic production and imports.

Jonathan then shifted the conversation to OCP, a Moroccan company that produces fertilizers. Eddy explained that OCP mainly produces phosphorus-based fertilizers and has a significant presence in India, Brazil, North America, Europe, and Argentina. He also mentioned that OCP exports fertilizers such as MAP, DAP, and TSP, as well as phosphoric acid, rock phosphate and NPS (new products). Eddy estimated that around 15-20 per cent of OCP’s exports are in raw material form as rock, while the rest are processed fertilizers. He also noted that OCP is a market maker and is careful not to compete against itself in specific markets.

Agricultural Product Pricing and Volatility Discussion

They then discussed the pricing and volatility of agricultural products, particularly fertilizers. Eddy explained that while fertilizers have some form of futures markets via future swaps, they lack the liquidity to be a robust reference market. Prices are determined mainly by current economic and fundamental factors. He noted that nitrogen and potash products have recently calibrated to grain market levels. At the same time, phosphorus prices have increased significantly due to reduced exports from China and stock depletion in India.

Jonathan asked about price volatility, to which Eddy responded that it’s driven by events like the Ukrainian war and climate situations. He also confirmed a correlation between grain and fertilizer prices; not all fertilizers follow oil prices.

Strategies for Selling Product and Industry Dynamics

Eddy and Jonathan discussed strategies for selling their product, emphasizing the importance of long-term contracts and price security through formula contracts tied to published prices. They also discussed the changing dynamics of the value chain in the fertilizer and grain industry, noting that companies are now more focused on buying, supplying, and selling back to back, as opposed to taking positions. Eddy highlighted the challenges in setting up a supermarket or grocery store for farmers due to the grain and fertiliser businesses’ different profit and loss objectives. The distribution model hasn’t been mastered by anyone yet.

Fertilizer Industry in Argentina: Production and Politics

Jonathan and Eddy discussed the fertilizer industry in Argentina, which produces single superphosphate (SSP) while the rest of P products are imported, i.e. monoammonium phosphate (MAP). Eddy explained that Argentina mainly imports rock for production and that Bunge handles most SSP production while ACA, a cooperative, manages the rest. They also touched on the political aspects of the industry, with Eddy noting that Argentina has had populist governments in the past that have caused sudden changes in import quotas and exchange rates. However, Eddy expressed hope that the new government would bring stability and predictability to the economy, including the fertilizer industry.

Argentine Fertilizer Challenges and Brazilian Comparison

Eddy discussed the recent challenges faced by Argentine farmers due to economic and political instability, which led to insufficient fertilizer application and reduced soil nutrient levels. He compared this to Brazil, which has tropical soils and requires more fertilizer for production, with relative economic and exchange stability over the last 20 years. Eddy suggested that Argentina needs to import between 50 to 70 per cent more fertilizer to maximize grain production. Jonathan understood this and noted that Argentine farmers have historically not applied enough fertilizer regardless of the farming intensity that good crop yields bring. Eddy also pointed out that Brazil’s fertilizer consumption is significantly higher than Argentina’s and that Argentina should aim to consume around 6 to 7 million tons of fertilizer annually versus today’s almost 5 million tons.

Fertilizer Industry Dynamics and Import Challenges

Eddy and Jonathan discussed the fertilizer industry, focusing on the role of importers and the challenges faced by farmers. Eddy explained that the distribution industry is cyclical, with three bad years followed by two profitable ones, leading farmers to try to avoid market fluctuations by importing directly. He mentioned that significant players like Bunge, Cargill, COFCO (trading companies), and farming cooperatives are involved in importing. Eddy also highlighted the importance of brands in the industry, with companies like COFCO and Nutrien diversifying into specialized products. Jonathan inquired about the logistics of importing, to which Eddy responded that most imports are in bulk, with only 30 per cent being bagged at ports for distribution. They also touched on the safety precautions needed for bulk logistics, which are comparable to international standards.

Fertilizer Supply and Food Security Concerns

Jonathan and Eddy discussed the importance of fertilizer in agriculture and its potential impact on food security. Eddy clarified that while there are concerns about the supply of fertilizers from certain countries like Russia, international safety standards and country controls mitigate these risks. He also mentioned that some countries, like Brazil, have taken steps to secure their fertilizer supply. Jonathan expressed concern about the potential for a few fertilizer exporters to hold countries to ransom due to their dependence on these exporters. Eddy reassured him that while there have been price spikes and minor supply disruptions, these have not led to significant food security issues.

Part Three: The Haber Bosch process

After my previous conversation with Michael Sebag, some people questioned the importance of the Haber Bosch process in enabling and maintaining current population levels.  This article by Hannah Ritchie explains the arguments behind the assertion.

We often talk about the effect of industry on our health, but the Haber Bosch industrial process has produced half the nitrogen in your body.

According to Chat GPT (again), the human body contains about 3 per cent nitrogen by mass. Nitrogen is a key component of many biological molecules, including amino acids (the building blocks of proteins), nucleic acids (DNA and RNA), and other vital compounds. It is essential for cellular function, growth, and repair, forming the backbone of proteins and genetic material.

For an average adult human weighing around 70 kg (154 lbs), about 2.1 kg (4.6 lbs) of their body mass would be nitrogen. It means your body contains at least one kilo of fossil-fuel-based Haber-Bosch nitrogen.

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