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Please tell me about yourself and HC Group.

I joined HC Group after university and will celebrate my 20th year with the company this month. I started as a desk researcher on the European gas and power markets. In 2007, three years later, I put my hand up and said, ‘Hey, I think I’d like to go to the US. A booming energy market is out there, and we aren’t doing any of it. Give me a shot.’

Our then-founder and CEO, Justin Pearson, agreed and gave me a choice between New York and Houston. I chose Houston and have been here ever since.

We started focusing on agriculture in 2010, with ADM as one of our anchor clients. During that period, the main ag houses were diversifying into other areas of the value chain, so much of our work was outside of trading in areas such as animal and human nutrition.

The years between 2012 and 2018 were challenging for us and the sector. In 2018, Justin Pearson was keen to move on. My colleague Damian Stewart and I bought the business from him, and now we’re co-owners. The firm was then down to about 24 people. With luck and judgment – luck being the markets coming back and judgment being that we made some significant changes to get the business back on its feet – we’re now 85 people in six offices.

At HC Global, we do everything a top-tier standard search firm would do, but we just focus on the commodities sector. That focus gives competitive advantages over other, more generic search firms. We understand the roles better and better at assessing candidates’ skillsets and fit. We have an established network and brand within the market, so we are typically already connected within the candidate community, and they trust us. It also means we can be true advisors to our clients.

Where are the current hotspots?

Digitization, de-globalization, and the energy transition are the current hotspots. If you take those three and look at any given commodity vertical, the hottest demand is the intersection point.

The intersection in ags occurs around biofuels. An energy company may need ags experience for their feedstocks, while an ags company may want energy experience for marketing.

With de-globalization, the world has become more complex, riskier, costlier, and less certain. You need professionals in your organization to manage that.

Then, there is digitization with a drive to lower costs and facilitate decision-making. Of the three verticals, energy, ags, and metals, ags is probably five or six years behind the other markets in digitalization.

Another hotspot is hedge fund demand for ag traders. There are relatively few ag traders, particularly those who can trade from a blank paper.

Skill sets are the easy bit. The hardest is the cultural and behavioural fit. You have only a few companies in the ag world, and they are culturally independent. Cargill is different from ADM, and Dreyfus is distinct from both. The challenge is to find people who fit in your organization and your organization’s goals.

That’s particularly true in trading, where you might have people with the same skill set, such as a wheat or oilseeds trader. Depending on what company they’re in, they’re trading for vastly different goals. One might be filling a system, and you don’t want them taking risks. In a hedge fund, it’s an entirely different scenario. That’s why the cultural and behavioural fit are critical. Getting that piece right is challenging, particularly in a market short of talent.

Now, let’s go to the podcasts. How do you find participants for them?

Most of our guests come from recommendations from our network. Overlaid onto that is an odyssey of personal interest. What do I find exciting? What are the current themes that need addressing?

It is sometimes challenging to find individuals who are not overly controlled by communications departments. We look for guests who can provide a balanced, in-depth view rather than just advertise talking points.

People are sometimes reluctant to participate for fear of revealing strategies and information. There’s a historical culture in that you don’t want exposure, you don’t want to be in the media, and you don’t want to talk openly about anything for fear of giving your competitors insights and information. There’s a feeling there’s a downside to discussing how much money you’re making. You face political and cultural headwinds in the commodity trade.

I try to find a balance between men and women, but it’s a function of demographics. Women make up about 30 per cent of the workforce in the sector but occupy only 20 per cent of the senior positions. I try to do better, but the demographics of the podcast probably reflect that reality.

Typically, I have a half-hour to an hour chat with potential guests, and we’ll develop the primary arc of the conversation. I don’t like scripting or going into too much detail. It takes an hour to record the episode. I do a draft edit and send it to a lady in Finland who does the fine edits. All in all, end-to-end, it’s probably a three-hour process. But then I’ve had a lot of practice. The first few episodes took a lot longer.

I do one podcast a week and publish it on Wednesday.

You’ve been doing these podcasts for four years and have just completed the 200^th. On average, how many listeners do you have?

I can’t capture all the data because we don’t have access to some platforms. Roughly speaking, we have about 25,000 listeners a month. We’re nearing a million downloads and have had some 300,000 listeners. Our core audience listens to every episode, and many people dip in and out depending on the topic.

The commodity sector is niche; we only advertise on LinkedIn and to our connections. We create podcasts for the commodity sector.  Despite being niche, we are regularly in the business charts in Europe and the US.

Most of the other commodity podcasts are short market updates. Ours are more extended discussions. One advantage is that, as a recruiter, I can ask stupid questions, say I don’t understand something, and ensure everyone’s on the same page.

Ultimately, everything comes down to people. We talk about talent at some point in every podcast. The success of a hedge fund or trading house depends on how good their people are and the culture that they build.

HC Group is a global search firm dedicated to the commodity sector and the people within it. Our podcasts are an extension of the culture of the business.

What have you learned since you began the podcasts?

I feel less confident about everything now than before I started the podcasts four years ago. Understanding markets takes work and research. I’ve learnt how complex and nuanced everything is and how people quickly jump to shorthand, heuristic judgments.

Let’s take the energy transition. We’ve done episodes on critical minerals with issues around child labour, unsatisfactory working conditions, and corruption. Companies like Apple say that they want this and that, but they ignore some of the complexities. Regulators ignore the trading community when it comes to battery minerals. They don’t engage traders.

If you want to affect energy transition and get to the heart of sustainability, the commodity sector is the place to do it. Other sectors, like the technology sector, are terrible for the environment, but they’ve managed to hide the material supply chains they rely on. Trading houses and traders receive the blame.

A senior banker recently told me his bank’s risk committee would drop a commodity trading house if it got fined millions of dollars for an infraction. At the same time, Google regularly gets billions of dollars in fines, and no one has a problem doing business with them.

The stock market typically values companies with a trading arm at a discount. Trading is innately hard to understand. It overlays with the desire of the sector to go under the radar. Most of the headlines and books on commodity trading glorify and revel in the scandals. They do a disservice to the industry as they don’t reflect how it operates today.

When you see a headline that a trading company made billions of dollars trading European power, the public perception is that the energy traders have been gouging us. The reality is they have been solving problems.

The worry is that there’s intensive pressure on governments to intervene, particularly in the ag markets. Without a free-trading commodity market, you would have increased volatility, sharper price spikes, and higher inflation. It is a real challenge for the sector. In a more volatile world, will we lose the functionality that allows markets to address issues in solving problems in space, time, and form?

When I first joined the sector, the top companies, such as Cargill, had the pick of the best schools in the US. The top students now go to investment banks, hedge funds, and technology companies. A lot of that has to do with the low returns over the last decade. It has resulted in a talent bottleneck at the junior executive level. Everyone’s feeling it.

You’ve got two more issues. One is that the sector is male-dominated, which makes it harder to attract women. The other is the environment. It can be hard to tell your classmates you’re joining an oil-trading company.

The sector has some real challenges. It’s not promoting itself. It’s not attracting the best and the brightest. And it hasn’t done so for some time.

When I did an MBA at Rice University in Houston, we had classes on equity trading but not commodity trading. Few universities teach how commodities flow around the world. All top universities should have classes on it.

© Commodity Conversations® 2024

Commodity Professionals – The People Behind the Trade is available on Amazon.

Murilo is an old friend from my many years in the sugar market. He is almost unique in that he has worked all along the supply chain, first for a trade house (Louis Dreyfus), a bank (Macquarie), a producer (Raizen), an importer, and a food company (Tharawat in Saudi Arabia). He is now Hedgepoint’s head of sugar and ethanol for the Americas.

With over 10 years of experience in price-risk management for agricultural and energy commodity chains, Hedgepoint became an independent company in 2021 following a spin-off from EDF Man Capital. Operating globally, the company is strategically positioned near major commodity exchanges, with offices in São Paulo, Uruguay, Chicago, Zurich, Dubai, and Singapore. 

“I’ve been on both the sell and buy sides,” Murilo told me. “It allows me to put myself in my client’s shoes. When you do so, you know where it hurts. You know where the hurdles are. You know where the opportunities are. You know how they think. It makes it easier to shape a product.

“It helps with the language you use and how you communicate. It also helps in terms of my network. Ours is a small community, and I’ve been in the business for so long that I have ended up knowing everybody. Sugar is a big family.”

“We can’t control prices,” Murilo explained. “We are price takers and invest heavily in market intelligence to predict in which direction the winds are blowing so that we can help our clients protect their price risk. We also invest in understanding our client’s culture and risk appetite. We must know what risks a client might want to avoid and the risks they accept.

“If we combine an understanding of where prices are going with a sense of the sort of risk-management products a client prefers, we can personalise a risk-management strategy for each client – a custom-made product for the clients.”

“We invest a lot of time and resources in building our S&Ds and our trade flows, understanding weather, yields, planting intentions, politics – everything that affects production. Fundamental analysis is our bread and butter. We capture a vast quantity of data and use our reasoning and technology to process it in a meaningful way.

“We also pay attention to macro factors, particularly the dollar. If the dollar goes up, producers’ profits increase in local currency, allowing them to sell at a lower price. The rule of thumb is ‘dollar up, commodities down.’

“We also look at and use technical analysis for short-term moves:  moving averages, support and resistance, and that sort of thing. It helps us to pick the right moments to place or lift hedges.

I wanted to move the conversation to Brazil and its challenges in production and logistics.

“Agribusiness is undoubtedly the most efficient industry in Brazil,” Murilo told me. We are second to none globally in terms of productivity and efficiency. People tend to think of agriculture as an old craft with small farms. It’s not that at all. It is at the cutting edge of technology, not only for the seeds but also for best management and industrial practices.

“Our first challenge is growing the sector to meet expanding global demand through higher yields and more efficiency without damaging the environment. People often paint Brazil in a bad light in agriculture because of deforestation in the Cerrado and Amazon, but nobody mentions that Brazil’s energy matrix is 90 per cent renewable.

“Infrastructure is our second challenge. Agricultural production has been increasing so quickly that it is hard for the country’s logistical infrastructure to keep up. Brazilian interest rates are among the highest in the world, making it complicated to get a return on infrastructure investment, whether rails, roads or ports.

“The country’s politics can be challenging. Policies and priorities change when the government changes, making investing complicated for the long term. It doesn’t help build confidence for long-term investors. That said, there are many things that the government has done right. During the eighties and nineties, the government privatised the railways and the ports, reducing government interference and increasing efficiency. It allowed the sector to tap international capital markets.

“The rail system has expanded significantly, making rail transport cheaper, safer, and more reliable.

“Some new roads are also being built privately, especially in the far north. The privatisation of logistic infrastructure has allowed agricultural production to flourish.”

“Are poor logistics holding Brazil back?” I asked.

“Logistics struggle to keep pace,” he replied. “However, things are improving fast, allowing expanded grain production in the frontier lands in the north. Previously, if you wanted to bring grains from North Mato Grosso to Santos, you would have to ship them 3,000 kilometres over poor roads. The new ports and roads in the north have cut these distances to 500 kilometres. The northern ports have also reduced ocean freight transport distances to Europe and the Panama Canal.”

From my days as an analyst, I remember how the high cost of inland transport shapes the crops farmers grow. When I started in the sector, Brazil’s sugar distillers provided all the ethanol in the country. However, corn ethanol production is taking market share in regions far from the ports. It makes more sense for these regions to use their corn for ethanol to supply the local fuel markets than transport it to the ports. The cost savings are further improved as the fuel distributors no longer transport gasoline to these remote regions.

People often complain that moving soybeans to Santos Port costs more than moving beans from Santos to China. I asked Murilo if that was true.

“It’s true,” he replied. “it’s partly because ocean freight is much more efficient and cheaper than road and rail freight. There is also less weight loss with ocean freight than with road and rail – particularly road. You lose a small percentage of weight when you move grains by trucks over poor roads. It is small, but it is significant. However, rail is taking an increasing share of the transport from farm to port; weight loss is becoming less of a factor.”

Jim Heneghan mentioned that US farmers are blessed with the Mississippi River Basin. River transportation is more environmentally and economically efficient than road and rail transport, giving US farmers a significant advantage over their Brazilian colleagues. I asked Murilo to comment.

“You are right,” he told me. “Brazil’s rivers are less workable than those in the US. We may increase barge transportation a little, but rail is the future for Brazilian crop exports.

“Moving commodities by rail increases our economic costs but not necessarily our environmental costs. Hydroelectricity accounts for about 60 per cent of Brazil’s energy matrix. Our rivers are not easily navigable, but they provide green energy.”

“Let’s move now to port elevation – the receiving and loading of grain onto ocean-going vessels,” I suggested. “How much does it cost to load a vessel at Santos?”

“This information is private,” he replied. Still, it should be about $11 per mt. Elevation used to cost as much as $36 per mt before privatisation. It initially fell to $18 per mt and stayed there for a few years, but it has been on a downward trend for the last twenty years.

“The ports have invested in faster, more efficient ship loaders. Thirty years ago, daily load rates were 2,000 to 3,000 mt/day. A terminal in Santos can now load as much as 40,000 mt/day.

“They have also invested in bigger and better warehouses, making segregating different qualities of commodities easier and speeding up reception.

“What’s the secret to a good elevation operation?” I asked.

“Efficiency is the secret to elevation,” he replied. “You must keep the costs down. It is a capital-intensive business. Maintaining high throughput volumes shrinks your fixed costs per tonne. Every penny counts.

“It can sometimes lead to a fight between the producers, trading companies, ports, and logistic operators. Traders and producers like to concentrate shipments and sales when prices are highest.

“Logistic operators like to ship the same quantity every month and don’t want the port and rail systems to stand idle. However, this is less of a problem because Brazilian agricultural production has increased significantly. The ports and rail systems run at 85-95 per cent capacity all year.

“There is a difference in how the sugar sector has developed compared to grains and oilseeds. The country’s sugar producers have become the biggest traders and exporters of sugar and have bought and built rail and port infrastructure. They have constructed an integrated value chain. The trading companies play that role in grains and oilseeds. Traders, not producers, own the grain and oilseed logistics infrastructure.”

© Commodity Conversations® 2024

This is an excerpt from my new book, Commodity Professionals—The People Behind the Trade, which is now available on Amazon.

The Brazilian agricultural sector is efficient and professional but struggles to move its production to the ports for export. The roads often disintegrate into a mud bath, and trucks can back up for kilometres on the highway to Santos. Ships can wait months if the weather is terrible. The sector has invested heavily in rail freight, and the situation has improved somewhat, but the roads still clog up during harvest season.

During my career, I travelled to Brazil to visit clients, often inland, to talk with producers and discuss crop progress. I also frequently travelled to the US but never got much further than New York City and their annual Sugar Dinner. Admittedly, I worked for Cargill for two years in Minneapolis at the beginning of my career, but that was a long time ago. At the start of this book project, I knew little about the US agricultural export flow from field to port.

Luckily, a friend suggested I talk to Jim Heneghan. When Jim joined Louis Dreyfus in 1998, his first job was to buy and sell CIF (Cost Insurance Freight) barges from the interior of the US along the US River systems, primarily the Mississippi River and, to a lesser extent, the Ohio, and Illinois, and Missouri Rivers, flowing to New Orleans for export.

“US agriculture is blessed to have the Mississippi River System,” Jim told me. “It has thousands of miles of navigable waterways reaching the heart of the country’s grain belt.

“Moving crops to export ports by barge gives the US a tremendous transportation cost advantage over Brazil and Argentina,” he explained. “The cost of moving grains to the ports in those countries is enormous. US farmers don’t have to rely on the road system, like in Brazil, where they must truck grain from Mato Grosso to Santos across some tough kilometres. This cost advantage can ebb and flow with currency changes. For example, a weak Brazilian Real vs the US Dollar can offset some of that advantage, but the US’s natural advantage is not going anywhere.

Jim left Louis Dreyfus in 2013 to become the Global Business Manager for Agriculture at BTG Pactual, Brazil’s largest investment bank, where he was involved in setting up agricultural commodity trading from scratch. He now sits on the board of Greenfield Holdings, a company building the first new grain export elevator in Louisiana since 1979. The elevator will have an annual capacity of 11 million mt. It will receive grains and soybeans, predominately via barge, and load them onto oceangoing vessels for export.

“We are working on the final permits with the US Army Corps of Engineers,” Jim told me. “While developing this ship-loading facility, we have a barge-loading feeder facility upriver in Lake Providence, Louisiana. I don’t merchandise for that facility today, but I follow the facility’s positions and am involved in the company’s risk committee.”

The CIF barge market to New Orleans is the largest US cash market for corn and soybeans. It’s also the primary delivery mechanism for the Chicago Mercantile Exchange (CME) corn and soybean futures contracts. I asked Jim what the main drivers of the CIF barge market were.

“The supply and demand for exports out of New Orleans,” he replied. “You’re looking at the interior supply of crops that can lead to an exportable surplus into the river system for exports. Then there’s a big operational component, everything it takes to load, insure, ship, and manage a barge. We must also watch out for quality and phytosanitary aspects. All of this is risk management.”

“When people talk about exports from New Orleans,” I asked, “does that include all of Louisiana?”

“There’s a mile marker system,” Jim told me. “When ocean vessels come into the river system, they pass the Southwest Pass (SWP), where the captain hands over his ship to a pilot who takes it up the river system.

“Regarding commodity loading within the river system, nothing exists for the first 40 miles because of the delta. The main loading corridor for grain is from mile marker 60 up to about 210 miles north of the sea, above the SWP. A bridge in Baton Rouge with an air draft doesn’t permit large vessels like Capesize or Panamax to go north from there. The main commodity corridor is from Baton Rouge to the south of New Orleans. Call it a 100-mile corridor.

“It’s tidal, but the river levels depend more on the water flowing from the Mississippi River system. At Baton Rouge, you can have a low of 5 feet on the river gage to a high of 40 feet. The tides matter, but the river depth depends more on the upstream variability.

“We heard a lot about low water levels restricting barge activity. Is it something that will happen regularly?” I asked.

“I sure hope not,” he replied. “Low water levels make things difficult from an operation standpoint, loading and shipping barges at the proper draft and ideal economics. The whole system backed up due to the historic droughts in the Southwest and Western Corn Belt. That’s recovered somewhat, and we’re returning to a more normalized flow.

“The river system is also prone to flooding. If you have too much water in the system, you can get flooding on the lower Mississippi River around Cairo, Illinois. That’s a big area with a lot of flow coming in. It can flood portions of Missouri, Arkansas, Tennessee, Mississippi, and Louisiana along the river system. As the water rolls down to New Orleans, the authorities can open spillways to relieve the flow. But yeah, there can be severe flooding episodes.

“Floods will affect the downbound transportation and grain supply to New Orleans. It can be hazardous to take a barge tow downbound. The river authorities will restrict the number of barges you can transit. It can be mitigated to some degree by rail freight, but the system is set up to be barge-served. Typically, 90 per cent of the supply arrives via barge and 10 per cent by rail.

“The upbound move also becomes difficult as it’s a throughput and a backhaul system. If barges can’t get downbound, then they can’t get upbound. But even if they can get upbound, going against the current requires a lot of tow power.

“Then, at some point, if the river levels are high enough, it’s hazardous to have anything in transit as you’re putting projectiles on the water that can eliminate docks and bridges. There have been episodes of tows or vessels breaking away.

“I always imagined,” I told Jim, “that the barges would be empty going back up.”

“You’ll get empty barges upbound, but the barge companies try to do a backhaul if they can – often fertilizers. The downbound is usually grain and coal.”

“Does agriculture compete with coal on the Mississippi for barge capacity?” I asked.

“The barges are different. Grain barges are covered, whereas coal ones aren’t. You have a different barge capacity and fleet for different products, but you still have throughput and need tows and schedules to go up and down. It can be complementary, but it might be competitive at other times. It’s hard for the ag space to move the energy space. It’s the other way around.”

“Could you explain the CIF barge market to me?” I asked him. “How does it work?”

“If you have a farm close to the river system, depending on the time of season and other factors, the best market for your grain is probably for export. You would sell it to a silo operator who would put it on a barge. These river facilities typically don’t have a lot of storage. They’re throughput facilities, like New Orleans, but on a smaller scale.

“If you’re running a river terminal, you will look at the export bid Free on Board (FOB) New Orleans and back that up to the interior, including all the transport and surveying costs and an elevation margin for the grain facility on the river system. The grain barge loading facilities will try to buy enough grain to load up barges and build a program. The barge quantities are roughly 55,000 to 60,000 bushels. Let’s call it 1,500 metric tons (mt).

“If you are in the heart of the Midwest, you may get competitive bids from oilseed crushers, food processors, and biofuel producers. Farmers will say, “What’s my best market today, spot or forward, export or domestic?”

“Louis Dreyfus owns river loading facilities, buys grain directly from the farmers, and loads it on barges. When I worked there, we didn’t buy FOB the river; we covered the whole supply chain.”

“How much weight is typically lost during transport to the export terminal?” I asked.

“Typically, you have a loss of around one-quarter of one per cent,” he replied.

I had read somewhere that as farms get bigger, they are taking over the inland storage role from the trade houses and farmer cooperatives. I asked Jim if that was true.

“Yes,” he replied. “On-farm storage has increased due to good farmer profitability over an extended period. Farmers have become more corporate over time and are now handling assets previously held by the big co-ops or the multinational players. The multinationals have gotten out of that business; regional co-ops and farmers have replaced them.

“The big co-ops like CHS have international operations and do everything from agronomy to services, fuel, distribution, handling, owning assets, merchandising, et cetera, all the way through to financial services. Then, you have regional versions with big co-ops in states like Iowa. Some own processing facilities and crush plants to serve renewable diesel demand.

“The old romantic co-op model where the farmer drives down to the one small co-op elevator in the middle of town is dated. The US is moving more towards a Brazilian model of corporate farming driven by demographics and the search for economies of scale.”

Around 40 per cent of the annual US corn harvest goes to ethanol and DDGS production. With the country developing its Renewable Diesel Programme, I wondered whether its agricultural exports would decline. Would this result in export overcapacity on the Mississippi?

“It ebbs and flows,” Jim told me. “It’s never been structurally oversupplied, and elevation margins are usually positive. The problem is more in the other direction. Elevation margins surge when export demand picks up. It’s not easy to build a new export terminal. You’ve had natural expansion from the existing players, but little new capacity has been brought online.

“We’ve mandated more demand for biofuels, and maybe we will have fewer soybeans and corn to export, but we could increase soybean meal and DDG (Dried Distillers grains – a by-product of ethanol production) exports. Chinese soybean crushers have a duty advantage in importing soybeans and crushing them domestically rather than importing meal,” Jim told me. “But if that ever changed, we could see meal shipping to China rather than soybeans.

“It’s been part of our thought process at Greenfield regarding our new facility. The river system is so expansive there are ways of shipping meal rather than beans. The US system can adapt quite well. If that’s an opportunity to adjust, it can do it.”

“What are the biggest changes you’ve seen in your career in the US domestic market?” I asked Jim. “Is it biofuels, corporate consolidation, or something else?

“The two episodes of biofuels expansion in the US. The first was corn ethanol and, to a lesser extent, soybean oil-based biodiesel with the Renewable Fuel Standard (RFS) starting in 2005. It significantly altered the economics of domestic processing versus export demand for corn. The second is happening now with the expansion of Renewable Diesel (RD). It is increasing the domestic consumption of soybeans and soybean oil.

“Can you tell me three things about the CIF barge market,” I asked, “that everybody should know but nobody thinks of?”

“The first goes back to the delivery system. The CIF barge market is one of the most transparent, liquid, visible agricultural physical markets. It is standardized and well thought out regarding rules, regulations, and trading and has a heterogeneous trading base. It ties directly into the CME futures instruments and is an excellent mechanism for connecting physicals to futures. How the CME corn and soybean futures markets converge with physicals at expiry depends on the CIF barge market.

“The second is that the direction of future price or “flat price” depends on the US balance sheet, distilled down to supply and demand, stocks or stocks to use, which you can quantify, but much of the variability is due to exports.

“The third is that the corn and soybean futures listed on the CME are for US corn and soybeans. The CME futures are a benchmark for world prices but are US corn and soybean contracts. You cannot deliver Brazilian corn or soybeans on the CME futures contracts. Grain in Brazil is fungible with grain in the US, but it’s not deliverable.

© Commodity Conversations ® 2024

This is an excerpt from my new book, Commodity Professionals—The People Behind the Trade, which is now available on Amazon.

I have been reading about avian flu crossing over to cattle in the US. How big an issue is it?

We’ve never seen it before.

The USDA confirmed that a virulent strain of avian flu is shifting over to bovines and dairy cattle. Four herds are impacted in two states, Texas and Kansas. People on these farms are getting sick, so there is a concern it may be crossing over to humans. They’re also now finding avian flu pathogens in unpasteurized milk. I hesitate to say it is like COVID-19, but there are some similarities.

We’re wondering what happens if the US export markets for beef or dairy get closed down. It’s a big issue; we are trying to determine how the US government will respond. We’re following it hour by hour. It could have a significant impact on the markets.

What else is driving the ag markets?

Rising interest rates have been driving grain prices lower over the last 18 months. They have forced money to leave the ag-markets. Funds have been going short in response.

Record high production in South America, principally Brazil in soybeans and corn, has shifted the dynamics.

We must also include China. China approved Brazilian corn imports in December 2022 and has been buying record amounts. Meanwhile, the US has been left as an island, with 2 billion bushels of US corn in stock.

There is nothing tight in terms of soybeans or wheat. The US is losing its thunder to the Black Sea in wheat and to Brazil in soybeans. We look at a landscape where the US is a residual supply holder. As a result, Chicago and world grain prices have come down to three-year lows.

What are the unknowns?

There are so many unknowns geopolitically.

The collapse of the bridge in Baltimore makes me wonder what would happen if the Kerch Bridge to Crimea were to come down in the Black Sea and Russian wheat exports were to stop. It would significantly impact the landscape. It could be a choke point.

There is also an ongoing rivalry between the US and China. Neither Trump nor Biden will miss a chance to bash the Chinese. The US exported around $36 billion of agricultural products to China in 2022. It would be a big deal if there were a breakdown in the relationship between the US and China, whether over Taiwan or economic issues.

You’ve seen in the news that former President Trump wants to impose 60 per cent tariffs on Chinese imports if he is elected. The Chinese are diversifying their supply as much as they can.  They just approved Argentinian wheat, and we expect they will also approve Argentinian corn.

It is a free-for-all right now in terms of geopolitics.

Climate change or weather has been challenging. Last September, October, and November, we had an unusual drought in northern Brazil. Will weather problems occur across the Black Sea, Europe, or North America? It’s unknown.

These are the things that keep us up at night. There are more unknowns now than I remember in my 43-year career in this business, and the markets are volatile.

How is the situation in the Black Sea?

We’re in the third year of war. It’s taken its toll on the farmers in Ukraine.

Ukraine exported about 4.5 million tonnes of grains in March, so the pace is reasonable at slightly below last year. Still, the Russians continue to target port facilities in Odessa and electrical and energy infrastructure elsewhere. We’re concerned about sliding export volumes in the future.

Ukrainian farmers are suffering from low margins and poor profitability. The average price of corn in Ukraine is around $2.90 a bushel. There is not a lot of profit there for the farmer. He can’t find financing, so it’s a relatively tough year. The Ukrainian government is trying to give seeds to the farmers to ensure they plant their crops.

Meanwhile, Russian agriculture seems to be booming. Mother Nature has been kind to Russian farmers, who produced back-to-back record or near-record large crops. The Russians have continually lowered grain export prices as they need hard currency. In the case of wheat, this is the first ten days in the last 18 months that Russian wheat prices have been rising.

Russia is experiencing a political dispute over who will export wheat. It increasingly looks as if the government wants to take control. A year ago, they kicked out the multinationals, and there is now a dispute between the most prominent private exporter, TD Rif, and the government.

Dimitry Rylko will try to lay the groundwork at our conference regarding what the Russians are looking at. Are they moving towards a national grain board? Are they taking their foot off the brake in terms of selling wheat more cheaply almost every week?

Interestingly, if I look beyond the Russians, the world stocks-to-use ratio of global wheat exporters is at a record low. If the Russians stop exporting, become more passive in their exports, or have a weather problem, the world wheat market will turn around. It’s an intriguing dynamic for wheat going forward.

What will you discuss at the Graincom24 conference, and why should people attend?

We will hold this conference in mid-May, right after the USDA’s first look at global crops for the 24/25 crop year. We will discuss the supply availability in the coming year and the challenges exporters face. We will spend time on India, Brazil and China, the three behemoths in the agriculture trade.

This year’s agenda has a broad scope.

We will discuss AI’s importance to agriculture. For many of us, this is a new dynamic. How does it fit into trading, farm marketing, and agronomic programs?

We will hold a legal panel on sanctions. How are they impacting agricultural trade?

We want attendees to leave the conference with a clear understanding of the world’s economic and political landscape. We want to give attendees the information and the analysis they need to decide whether they should buy or sell the grains – and where the opportunities are – over the next six months.

We expect to have a full house, around 600 to 650 people. It should make it a great networking opportunity as well.

I look forward to seeing you there!

© Commodity Conversations ® 2024

Good morning, James-Scott, and welcome to Commodity Conversations. Please tell me a little about yourself.

I’m both British and American. I grew up in the States, primarily in New Jersey and summers in California, where we had extended family. I went to university in New York. I worked in New York, then went to London. That’s pretty much it.

I am a private person. That’s always been my mentality. Opening and sharing are foreign to me. My father used to tell me that if you lay low in the weeds, people never know where to attack. That’s served me well my whole life. But my friends tell me I need to tell my story.

How did you get into ags?

I came from an investment banking and trading background focused on distressed and restructuring. I joined ED&F Man in 2012 as Head of Fixed Income Credit.

The most refreshing thing about moving from investment banking into commodities is that commodities are more about relationships. You develop a deep relationship with your customers. You break bread with them on their farms. You need to be there in person. In 2013, while with ED&F Man, I flew to 40 countries in six months.

You set up AlmaStone in 2017. What prompted you to do that?

I left for two reasons. First, I was in the investment business in a trading firm. I’m naturally long- rather than short-term-oriented. My business was about investing and making loans.

Second, I outgrew the relationships. I started financing beyond ED&F Man’s core commodities and geographies. So, it made sense. In 2017, I spun out with the backing of Warwick Capital, a $2.5 billion private equity fund.

I worked with the fund’s two founders two decades ago at Credit Suisse, so our relationship has a lot of history and alignment. So, beyond the corporate story of being backed by a large private equity fund, I’m a big believer in following relationships.

What is your elevator speech for Alma Stone?

 We do direct, senior-secured lending to middle-market agribusinesses. We’re a combination of three businesses in one.

In one way, we’re no different from a classic private credit shop, where it’s heavy desktop analysis, looking at the borrower’s creditworthiness (e.g., historical financial ratios and forecasts.) Where we differ – because of my background in distressed and restructuring – is that we take an intrusive M&A approach every time we look at a company.

Second, we’re no different than an asset-backed lender. We always look at downside protection. We try to factor in worst-case scenarios. We structure against enforceable collateral. We might do pre-crop, starting upstream with primarily producers and processors. If we are talking sugar, we follow the chain from when the sugarcane goes in the ground through the factory that processes it into raw sugar or ethanol and down the supply chain to the soft drink manufacturer.

Third, although we masquerade as financiers, we think and act like merchants. We have a combination of talents on the team. My colleague in Brazil was the former CEO of the third-largest grain trader in Brazil. My COO was the head of market risk at ED&F Man. We know a little bit about how to move stuff.

We take a partnership approach in our business. We come in as informal advisors and are proactive in helping the client. We look at the agricultural and operational aspects and assist with pricing and hedging. It gives us a comprehensive preview of the business from upstream to downstream. We see the flow of goods. It gives us a holistic perspective.

How many people are you now?

There are nine of us in the team.

Rabobank told me a few years back that they only finance the big trade houses because of the weight of the financial and ESG due diligence. They don’t fund the smaller players. Do you look to fill that gap?

Banks and trade houses dominate the finance within the supply chain. Traders would typically secure a five-year agreement and give a prepayment. The conditions of that prepayment are often better than a bank’s terms, but the traders make it back through their trading.

Due to Basel 3, the major banks tend to gravitate towards investment-grade counterparties and concentrate their risk. They must do the same due diligence, whether it is a $5 million or $200 million loan. However, every time the cycle shifts and things improve, they come down the curve towards the middle market.

We don’t compete with the banks for the big company business because bank financing is cheaper than ours. Likewise, we don’t focus on SMEs (Small and Medium Enterprises) because of their level of corporate governance and client sophistication. We focus on middle-market counterparties, where you’re beginning to transition to a better governance structure and more transparency. It’s just trying to find that sweet spot in the middle.

When I first started the business, I wanted to finance the Guatemalan coffee producers, but they are smaller leasehold farmers, and the risk is significant. We now focus on processor-producers like sugar mills or soybean crushers. They act as informal banks at the start of the supply chain. They finance the farmers, take that risk, mitigate it, and then create the value conversion.

When we do transactions to mitigate performance risk, we approach it partly like a bank with a credit agreement and contractual remedies, partly like a trader following the flow and goods, and often inserting a third-party collateral manager. Then, to mitigate payment risk, we usually take assignments over offtake agreements of friendly traders. In that way, we follow the cash payments and logistical movements. It gives us a lot of levers to pull.

The nice thing with crops is that you can follow the cycle. The nice thing with logistics is you can see when things get stuck. The last challenge always starts with the people and relationships. You want to finance people you know, people with a similar philosophy and alignment, and you grow with them.

Where do you get the finance from? You mentioned the fund that invests in you, but does all the finance come from them, or do you finance it any way you can?

Warwick Capital is our equity sponsor. In addition, a large, blue-chip pension fund provides our term loan capital.

What keeps you awake at night?

It is easy to make a loan, but getting the money back is not always easy. It’s a delicate balance between control and influence.

I don’t kid myself about the countries we’re in. Most of our business is in Latin America, Africa, the Black Sea, and the Middle East. We constantly evaluate probabilities. Risk is always apparent.

Have you had any defaults in the six years since you started?

We haven’t had any outright defaults, but anyone in the lending business who survived COVID and who tells you they don’t have any NPLs (Non-Performing Loans) would be lying. It’s the nature of the business.

We finance one of the largest agricultural producers in Ukraine. It’s incredible how they are coping with the war, and they only recently have begun to have issues honouring their obligations to us. That’s the nature of the business, right? It is what it is.

Can you insure some of those credit risks?

Absolutely, but the question is whether the insurance pays.

When we think of risk mitigation, there are four levels of recovery.

If you know the goods are delivered to an off-taker, and given that I have an assignment, the off-taker pays me directly. That’s level one.

I focus on middle-market counterparties because they can pay me out of their liquidity if a crop is delayed or something goes wrong. That’s level two.

The third level is the “Can’t pay, won’t pay” scenario. If there is a $13 million pile of sugar against our $10 million loan, I will enforce against it to seek recovery. We have the mechanisms and know how to do that.

The fourth, as you mentioned, is insurance. We’re probably one of the few non-banks that carry our own dedicated cargo policy. We still actively use Lloyds’s, but that capacity has waned for ags.

Do you deal only in ags?

We can do other commodities but stick to our knitting, which is ags.

Fraud has recently been in the headlines in metals warehousing. Is fraud less prevalent in the ag trade than in metals? And how can you avoid it?

Fraud is everywhere. It’s in commodities, financial markets, crypto, etc. You can’t prevent it. You can build a higher wall, but someone will find a way to get around it. You can introduce more regulation, but fraud is a purposeful evasion of the rules and systems.

There’s a theoretical understanding where things look good on paper, and then there’s the practical side of being on the ground and having a commercial understanding of how things work.

Can you give me an example of a loan that you’ve made?

In LatAm, we provide pre-export financing for sugar mills. In Africa, I tend to start on inventory. I finance stocks in the warehouse and get paid when they leave the warehouse.

We finance tobacco. I know it’s a controversial crop from a Western standpoint, and we do have a phase-out strategy in our ESG documentation, but you look at it differently when you are on the ground and understand its social impact. For example, tobacco in Zimbabwe accounts for approximately 20 per cent of their exports, and it’s the most viable cash crop for many farmers.

I understand there is an issue of child labour in picking tobacco. How do you deal with environmental and social issues in your supply chains?

We do formal investigations regarding land and company registries, but we get a better feel when we’re on the ground, where we hear and see what goes on. It gives us a better overview.

You do as much diligence as possible – it’s part of your process – but there’s a certain level of trust, right?

In no way do we condone child labour, but in crops, issues often arise when a company hires a third party to bring in and manage migrant labour. You try to mitigate it as much as you can from a top-down perspective by choosing a partner who does what they say they do. And then, you try to evaluate the situation on the ground. That’s why I travel so much. You trust, but you must always verify.

Would you lend to somebody without going to visit them?

No, it’s a rule of mine. It’s essential in any business. You can put any metric you want on risk, but there’s no transaction if there’s no relationship.

You call yourself a purpose-driven business – what is a purpose-driven business?

I’m Roman Catholic. This morning, I talked with a friend about the concept of God and Mammon. The Bible teaches us that humans can’t serve two masters: God and money. One is virtuous; one is materialistic. There is, however, always a balance. How do you balance people, planet, and profit?

You can’t have a purpose if you don’t have profit. Profit makes the world go around, but how do you effect purpose once you have profit? We’re blessed in the West because most of us don’t have to worry about sustenance, but there are emerging markets where sustenance is still a factor.

When we started the business in 2017, it was about CSR or corporate social responsibility. Since inception, we have included ESG in our investment process but never formalised an accreditation as I believed it was not genuine and “pay-to-play.” It was a whole new metric for raising capital, but people didn’t necessarily do what they said. And sure enough, at the end of 2022, you saw the tide go out with many greenwashing headlines.

Our metric is always, “Is our intention matching our output?” We believe in ESG and continue to evolve our policies; however, it must be balanced relative to the circumstances.

How do you measure success in a purpose-driven business?

It’s challenging, right? I struggle with it constantly.

There’s a financial metric, and there’s your heart. For me, it’s knowing we were put on Earth for a greater purpose. If I can extend the table for another person, that’s fantastic. If I can enable others to put themselves in a better position, that’s even better.

We are meant to give; we’re meant to serve. But you can’t serve if your vessel is empty.

When you do things of virtue, you only need one witness – yourself.

Do you only work with commodities that have been certified to be sustainable?

No, we prefer to do our own due diligence. Many of the companies we finance are bridges between agriculture and industry. A crop might be certified as sustainable, but you get a different viewpoint when you’re on the ground and see wastewater from the factory flowing untreated into a river.

In a recent interview, you mentioned that culture eats strategy for breakfast. What did you mean by that?

First, I can’t take credit for this quote as my South African colleague always uses this to summarise our business. You can have the best strategy on paper, but if your team doesn’t buy into it and doesn’t feel it, it won’t happen. You need the people around you to have a shared culture and vision to execute.

How do you manage your work/life balance?

I try to lead by example. Building this business has been a great sacrifice for my family. It’s funny. I say I do all this for my family, but I’m not with my family. It is something I am trying to correct.

Thank you, James-Scott, for your time and input.

© Commodity Conversations ® 2024

This is an excerpt from my new book, Commodity Professionals—The People Behind the Trade, now available on Amazon.

Good afternoon, Estefania. Could you please tell me a little about your current role?

I work for Fracht, a Swiss freight forwarder, and I’m in charge of anything related to ocean freight for the company. Fracht is big on general cargo, everything moved in containers, but is an expert on project cargo shipments, which is all the cargo that doesn’t fit into a container, such as generators, turbines, super modules, entire plants (energy plants, for example), etc. Fracht has just been awarded “Project Logistics Provider of the Year 2023” at the Heavy Lifts Awards.

I am the VP of the Ocean Product for North America, and my role is mainly creating and developing relationships with the ocean carriers. It involves finding the best rates in the short term and developing a strategy in the long term. How can we grow our business with each carrier – and which ones do we want to work with? I have a team of nine people in the market, quoting for business. We only focus on significant business opportunities.

How big is Fracht in the agricultural trade?

We move thousands of containers of peanuts, animal feed, lactose powder, whey powder, milk, soybeans, cotton, and other food products. The margins are so thin in the sugar business that there isn’t much room for a freight forwarder. I’m helping one of my ex-colleagues in Cargill, moving sugar and grains, but it’s challenging because the margin is so thin.

The shipping lines quote special rates for the agriculture business. They have specialized teams working on some commodities and are reluctant to quote to a Freight Forwarder on the business. Carriers don’t like sugar because it’s heavy and doesn’t pay much, but they do carry it and reserve space for it at specific rates.

It is not just a question of margins. The big trading companies have contracts with the carriers and do not need a forwarding company like us.

I remember that, at one stage, carriers offered negative rates for sugar containers because the vessels needed it for ballast.

Carriers don’t use containers for ballast. They have their own ballast systems.

There was a time pre-pandemic when carriers suffered financially and took any cargo they could get. So yes, some carriers needed cargo to fill their vessels and were aggressive with their rates, sometimes offering negative rates. The wheel turned during COVID-19 when space was limited. It was complicated to move heavy cargo such as sugar during the Pandemic.

Fracht is a private Swiss company founded in 1955 and still owned by the family. In that sense, it is like Cargill, which is also family-owned. Do you find similarities between the two companies?

Not really. I find more similarities between Fracht and MSC, where I started my career. Cargill is family-owned, but it is a big machine, and you never get to see the family. At Fracht, I talk regularly with the owner and update him on the business. It would never happen in Cargill.

But there are other advantages to working at Cargill. It is like a university in ag trading. I learned a tremendous amount while I was there. I started in my mid-20s and took every learning opportunity, such as courses, cross-training, and seminars Cargill offered. I’m very grateful for that experience because it changed how I think.

In what way?

I learned to keep an open mind when reading a market and never take anything as given. I’m teaching my team to read the market in the same Cargill way.

I owe a big thank-you to the great Cargill traders I worked with. They said, “Stephie, you must see this as an opportunity, so take all the information and then bet on your view.”

I hope he won’t mind me mentioning his name, but Alex Eito, one of my managers, pushed me to progress. He said, “Stephie, please organize a meeting, and you’ll explain to everyone how trading works.” I was surrounded by traders, and he wanted me to explain how trading works!

I said, “Alex, please do not do this to me.” He replied, “You can do it. Just explain to them how you prepare the position and how futures work.”

I didn’t sleep for three nights; it was terrible. But Alex told me it is the best way to learn. And he was right. He was pushy when I worked with him, sending me to the fire. And he was always saying, “What I’m doing with you, I want you to do it with others. When you are the expert, I want you to take the time to teach them.”

I kept those words like a tattoo. And I’m doing it. I’m passionate about being a mentor for people.

Tell me about your team.

Most of my team were green beans when I hired them. I like to hire people when I see a certain attitude in them, a mix of ambition and curiosity. I prefer that to someone who comes with a long resume.

We have a service centre in Argentina with 16 employees. I hired most of them. One of them was a sommelier. The other one was a mom at school who I met at Disney. I saw that thing in her. She’s the best lady we have. I took the time to train them, to pass on my knowledge and do what I now call “an Alex Eito”.

I tell them, “I cannot attend that meeting. Please go and present.” They answer, “Oh, my God. You can’t be serious.” But they do it. It’s what I enjoy the most about my work: seeing how they grow and thrive.

How long were you with MSC?

I started on the cruise side, where I spent two years before moving onto the cargo side for three years. I have a connection with the MSC family through my godmother, and I married one of MSC’s trade managers when I was nineteen.

Where are you now?

I am currently in Buenos Aires, but my job is based in Miami. My daughter was born in Geneva, but we moved to Argentina when I divorced. She was 13. She fell in love with Argentina, and I cannot persuade her to move. She’s 19 now and studying at the university here. Fracht kindly allows me to split my time between BA and Miami.

Where did you go after MSC?

I left MSC in 2010 and went to work in private banking for HSBC Geneva in their Argentina team. I jumped onto the opportunity when it arose. I was eager to learn about finance, but I hated it.

I remember one night, frustrated, I came back home, and I said, well if I’m going to change jobs, I better choose this time rather than let the job choose me. I lived across the street from Cargill. I went onto their website and found a job offer that suited my resume. I applied and got it. It was a game-changer for me. I stayed with Cargill for seven years, including my time with Alvean, their sugar joint venture.

Did you go to university?

Yes, but, as I said, I married young and never finished my degree. I regretted it for many years. I had always been top of my class at school, and my teachers had big expectations for my university and academic career. But life, as they say, had other plans for me. Now, I have no regrets. MSC, Cargill and Fracht proved to be better than any university.

When I joined Fracht, they told me that many top managers in the company don’t have a university degree, so welcome to our family. They trusted me so much that I just flew.

I was hung up for a long time because I hadn’t finished my university degree and lacked self-confidence. I needed approval to think that I was good, that I was smart, that I was capable. It would have been better if I had worked on that earlier to understand my capabilities better.

What did you learn from the Pandemic?

I learned a lot during the Pandemic. I learned to be flexible, adapt to new market conditions, and make fast decisions.

Many of the container carriers were almost bankrupt before the Pandemic. Now, they are billionaires and don’t know what to do with their money. The Pandemic taught them how to be profitable.

Right now, they don’t have cargo. What are they doing? They are reducing capacity. They prefer to stop a vessel rather than to have too much space and run the ship at a loss.

How do container companies manage stacking and shipping all those thousands of containers? Do they use complex computer algorithms or artificial intelligence?

The carriers’ planning departments use programs where they see each box’s weight and content and decide where to put it in the stowing plan. I imagine they use artificial intelligence.

The carriers allocate vessels to optimize their trades, and most make fast decisions, moving vessels from one route to the other to cope with demand and be as profitable as possible.

The operators look after the boxes and the stowing plans, and the stevedores follow the plan. You could consider each vessel like building a house. The architect gives the instructions to the building teams. It’s the same thing.

How do you track your containers?

Some carriers now offer a GPS service, but there are already a lot of systems tracking each container. For example, Fracht has a system that uses satellite information. It allows us to follow hour by hour where each container is.

There are various companies which track every container. You also have forwarders that put a device inside the container at the origin and take it out at the destination. So, there are a lot of solutions.

Do containers sometimes get lost – like luggage at an airport?

Rarely, although we now have two containers in India for a year and a half. They were supposed to go to Minnesota, but the carrier mistakenly sent them as empties to India. I have lost containers only three times in my 19-year career.

Traders sometimes complain about containers being left behind at the port. Does that happen often?

It happens often and was the new normal during the Pandemic, where the containers would be rolled 4-5 times if not more.

There are various reasons why a vessel might leave a container behind.

One would be if the vessel arrives late to a port. Vessels have certain hours agreed with each port, and they must leave by a specific time to reach the next port and maintain a reliable schedule. So, let’s say a vessel was supposed to have 10 hours in port, but because of bad weather or whatever reason, it arrived late and only had 3 hours. The ship must cut and run to the next port, even if it leaves cargo behind.

The second reason will be when carriers are overbooked. Sometimes, they are 30, 40 per cent overbooked. It’s not happening now, but it used to occur during the Pandemic. The world went wild. Everybody was moving cargo, and there was not enough capacity.

The third reason could be a last-minute change of schedule, or maybe your cargo is too heavy, and the vessel is too low in the water. If it is, the ship will leave heavy cargo behind. As sugar is heavy, it is often the first cargo to get left behind,

I’ve read quite a bit about drug traffickers using containers. Is that a significant problem?

I saw it while working in sugar, moving containers from Brazil, but I haven’t seen it since.

Have you ever had containers washed off a ship?

It has never happened to me, but it can occur when there are big storms; it is usually a lashing problem. You will understand why if you have seen a video of a vessel going through a storm. So, you had better hope that your container is not the one at the top.

At Fracht, we move around 70,000 containers a year, and it has never happened. At Cargill, we were shipping approximately 45,000 containers a year. It never happened.

How do you manage the stress and maintain an acceptable work/life balance? You’ve got a daughter in Argentina, you’re based in Miami, you’ve moved a lot. How do you cope with that all?

It’s not easy; it’s challenging. Things are better now, but we lived through a crazy time between 2020 and 2022. I work long hours every day, and I’m always the go-to person in emergencies or when something goes wrong, but because of my position, I must make the time and the mental space to create actions and strategies. I can’t be creative if I’m overloaded.

I try to make sure I delegate and have a solid structure to handle the day-to-day stuff whenever I need to take time off.

What advice would you give to your 19-year-old self?

To trust herself and be more self-confident.

I would tell her not to run. I spend my life running, but life slips through your fingers when you run. Take life one step at a time. Slow down. Don’t be in such a hurry.

I would tell her that what matters the most is not how life treats you but your attitude towards how life treats you.

Finally, I would tell her that the people she builds connections with will become her biggest asset.

Do you think she would have listened?

Probably not!

Finally, tell me one thing about yourself that isn’t in your LinkedIn CV.

There are many things about me that aren’t in my CV!

Here’s one: I am the great-great-granddaughter of Daniel Swarovski, the founder of Swarovski’s, the Austrian crystal glass company. My grandfather came to Argentina to escape the war, so I consider myself Argentinian.

Thank you, Estefania, for your time and input!

© Commodity Conversations ® 2024

This is an excerpt from my new book, Commodity Professionals—The People Behind the Trade, now available on Amazon.

Good morning, Simon, and welcome to Commodity Conversations. Could you tell me a little about your career journey so far?

I have spent all my career in dry cargo with intermittent ventures into the digital world. I set up my previous company, G-ports, in 2003 after working for Levelseas back in the Dotcom 1.0 days. G-ports was eventually acquired by Marcura in 2017.

I started with the UK’s oldest shipping company, Stephenson Clarke Shipping, founded in 1730. I spent three years with them as a trainee in operations and chartering before moving up to Panamax and Capesize vessels working for Mosvold.

During my career, I’ve worked with all ship sizes in the dry cargo sector, from coasters up to capes.   Within this sector, I’ve worked for owners and charterers in their operations and chartering departments, including six years at Peabody Coaltrade, where I helped set up the freight desk. Interspersed amongst those periods was my time spent setting up and growing G-ports.

You founded G-ports. Where did the idea come from?

A chartering person must constantly ring up port agents to determine port costs and port restrictions to enable accurate voyage calculations. It’s a cumbersome process. In 2003, I set up a database of over 1,000 ports containing proforma port costs and restrictions. Users could obtain the information they required at the touch of a button now.  G-ports then expanded into congestion indices and commodity flows.

Marcura acquired the company in 2017. I stayed with them for two years before moving to Swire Bulk, where I worked with their business innovation team, assisting them with digital transformation projects.

And what about SHINC?

The idea behind SHINC’s laytime management platform was borne from being both a frustrated user ‘on the ground’ and having sat in management positions where the visibility of our laytime and demurrage positions was hidden in emails, attachments, and Excel sheets. I launched it briefly in 2015 but then mothballed it as I didn’t think the sector was ready. I’ve since rejuvenated it as people now recognise the role digitalisation can play in their business.

We’ll return to SHINC shortly, but let’s stick to chartering and freight now. What’s the most significant change you’ve seen in freight in the 30 years you have been in the sector?

The way we do our work. Thirty years ago, we would handwrite a telex on a piece of paper, which we would pass to a secretary, who would type it up and send it via the only telex machine in the office.

The process moved to a mix of fax and email in the mid to late 90s, but a lot of it was still paper-based – printing off, giving copies to colleagues, filing, all that sort of thing.

Email helped because you could do it digitally, but you still had to go through a lot of emails. Now, you’re in a world where the email is read for you, automatically filed, and tagged.

There have been other changes. In my early days, we would do voyage calculations on the back of a cigarette packet and measure distances on the map with compass points. It is now all done electronically.

So, from a chartering point of view, the process of putting together a piece of business now can be done much quicker and more accurately than in the past.

Is the current trend to move from emails to platforms?

It is, but email is still the backbone of it all. Counterparties still communicate via email. A freight broker sends everything via email to his principals. Principals send everything to the ships via email, and so it goes on.

Platforms facilitate the information held within the organisation. The collaboration of the information after that is still a work in progress. Companies like Sedna exist because everyone is still using email.

At SHINC, we enable counterparts to collaborate digitally on the platform, but they still receive an email notification when a laytime claim is sent to them.

You mentioned that the emails are now read electronically. Does that use artificial intelligence? Can you see a prominent role of AI – Artificial Intelligence – within that email flow or platforms?

It’s a mixture of OCR – Optical Character Recognition – and AI.

Some services – AXS Marine, for instance – have been using OCR, the precursor to AI, to read emails for years. Sedna uses AI to read emails. It then extracts the relevant information and inserts it into the shipping companies’ platforms or accounting systems. It makes workflows more efficient.

In the case of SHINC, people spend a lot of time manually inputting information on the laytime and demurrage side, for example, extracting data from a statement of facts document into a laytime calculator. AI and machine learning will get us to the stage of automating much of this process. The user will then be the person who monitors the laytime process and makes decisions in a proactive rather than a reactive manner.

I like to compare it to an airline pilot. In the old days, pilots would fly a plane for 12 hours from London to Singapore. Nowadays, they pilot it for about 90 seconds. The rest is automated, but you still need the pilot to control, monitor and make proactive decisions when required.

Let’s move on to SHINC. What does SHINC stand for?

It’s an abbreviation that the shipping world uses in Charter Parties for laytime working days. It stands for Sundays and Holidays Included. I could have called it SHEX, which would have been Sundays and Holidays Excluded.

You’re at a shipping conference and in an elevator with a potential customer. You’ve got two minutes to pitch the company. What do you say?

I’m still practising this, so let’s see how it goes.

SHINC digitalises the laytime workflow vertical, making it a proactive rather than a reactive process, enabling commercial decisions to be made before events happen rather than after.

We digitalise the workflow, bring in as much automation as possible to reduce manual data entry, reduce the risk of mistakes and create a platform where users can create, collaborate, agree, and settle their laytime demurrage claims efficiently. All whilst providing users and their management complete visibility of all their laytime claims.

My follow-up question is, what problem is SHINC looking to solve?

The laytime process is still manual, from entering port events from the Statement of Facts into the laytime calculator to collaborating and agreeing demurrage claims via email with multiple PDF documents attached.

Users have long email chains of communications and spend time comparing one laytime calculation against another produced on different systems. They monitor and manage their laytime claims, often on an Excel sheet. It is still very much a manual process that is open to errors and sits at the bottom of the logistics chain. One error in calculating the laytime can cost users thousands of dollars. The data is so opaque that both users and management often never know the mistakes being made and the money they are risking!

The agreement of a demurrage claim can also be a cumbersome process as users often interpret the clauses in the contract differently, leading to protracted negotiations.

We hope to enable and encourage people to be more precise in their contract clauses, which will help to have fewer negotiations and quicker processing.

SHINC solves these inefficiencies by enabling information to flow live, both pre-arrival and whilst a ship is in port.  It will allow commercial decisions to be made proactively rather than reactively.

SHINC will then use a combination of AI and digitalisation to enable demurrage claims to be agreed upon and settled more as a process than a negotiation.

Finally, once the demurrage claim has been agreed, SHINC provides data insights to help chartering departments make better commercial decisions in the future.

When you say that it enables commercial decisions during the voyage and the port, what type of commercial decisions would those be?

A good example would be whether to work overtime or not in a port. Currently, one would probably have to sit down with a pen and paper to manually calculate how much lay time is left on the port call to ascertain if the shipowner should pay for overtime or the port. SHINC aims to enable users to track laytime remaining during a port call on a ‘live basis’. Thus allowing them to make more informed decisions about the likes of ‘Do we pay for overtime or not?’

Many of my readers are young people who are learning about the business. Demurrage, despatch, and laytime may be unfamiliar to them. Could you just briefly explain them?

When a charterer contracts a ship to carry cargo, they stipulate in the contract how long it will take to load or discharge the cargo.

It is known as ‘laytime allowed.’

If your cargo is 100,000 mt and you agree to load at 25,000 mt a day, that’s four days’ laytime allowed. It won’t take exactly four days to load in practice. Suppose the laytime used to load the cargo exceeds the laytime permitted. In that case, a penalty payment is payable to the ship owner by the charterer for keeping the vessel in port longer than the contracted period. That payment is called the demurrage payment.

If the vessel is loaded by the port quicker than the laytime allowed under the contract, the shipowner pays a payment called despatch to the port at (usually) half the demurrage rate. It is like a bonus to the port for loading the ship quicker than the contracted period.

So, laytime is the time the vessel spends in the port?

Correct. The time spent in port is subject to the contractual laytime clauses. So, you have laytime allowed, and then there will be events stipulated in the contract where the laytime clock stops.

What might those events be?

You can’t load sugar or grain cargo when it rains, so laytime will not count during rain periods. Laytime will not count when shifting from anchorage to berth. Laytime may not count if the vessel loader breaks down. Clauses like that stop the laytime clock as the port call continues. It is where the interpretation of the contractual clauses can cause disputes, negotiations and time wasted processing the demurrage claim.

In the contractual clauses, Sundays and holidays are sometimes included in the laytime and are sometimes excluded – which is why you’ve chosen that name.

Exactly. The standard terms are SHINC and SHEX, and then there are variations thereof.

What sorts of disputes occur over laytime?

The classic example is when the contract says that shifting from anchorage to berth does not count as laytime. We all agree, but the question then is which event counts as moving from anchorage to berth? Some say it is from ‘pilot is on board’ to ‘first line ashore’. Others say it is from ‘anchor up’ to ‘all fast’.

If the contract isn’t clear, you can waste time disputing that one point. Some more modern contracts explicitly say shifting from anchorage to berth means’ anchor up’ to ‘all fast’. It’s explicit and clear. But so many of the contracts are historical. They’ve been used year after year, and they’re not explicit in the terms. So, people then interpret it in different ways.

Are those clauses in the contract or the charter party?

They are in both the charter party and the commodity contract.

What happens if you have a chain of counterparties when the cargo has been sold on a multitude of times?

When you have a chain of counterparts, the ship owner makes the initial demurrage claim as they claim the demurrage compensation. This demurrage claim will pass along the chain of commodity buyers and sellers, eventually arriving at the port terminal operators. Each claim may differ slightly depending on the contractual laytime terms between the two counterparts in that part of the chain.  It means that for every one port call, there can be multiple demurrage claims flowing up and down the chain of counterparts.

I was interested to see that the different interpretations of the laytime clauses in the contract cause 30 per cent of disputes. So, how does SHINC help to resolve those disputes? You mentioned that you were trying to get people to be more precise in their contracts, but how will you do that?

It’s a long-term aim of ours – an education thing. We will look to advise our clients as we go along. It would be a case of saying, “You spent six weeks disputing the interpretation of a clause with your counterpart. Maybe you should reword the clause to avoid this confusion going forward and save you time and money.

It would be more of an advisory service we would offer as an add-on to our digital platform – a value-added service where SHINC is not just a platform but a company that helps parties improve their bottom line.

How much money are we talking about here regarding demurrage and despatch? Can they be significant amounts of money?

Absolutely. I don’t think anyone knows the total global annual demurrage bill for tankers, dry cargo, and barges. Educated estimates are several billion dollars a year.

How much might it be on an average grain cargo in Santos?

The most significant claims are at the beginning of the grain season when you have 60 vessels outside the port for 40-45 days. If it’s a $20,000 per day demurrage rate in the contract, you’re talking of a claim of $800,000 to $1,000,000.

Could your platform be incorporated into other platforms, such as Covantis?

Absolutely. We built our platform with an open API (Application Programming Interface) so we can integrate it with any other digital platform.

It’s part of how SHINC can help businesses facilitate efficient workflows. Integrating with other digital platforms saves businesses from manually entering data from one data silo into another.

When did you launch SHINC, and how’s it going so far?

We launched with our MVP (Minimum Viable Product) in March of this year. We’ve identified our ideal customer profile and are gaining traction within that sector. We are also building our brand so people know who we are, what we do and how we can help them improve their business.  We are a small, bootstrapped team, so things take longer than if one had more resources.

SHINC is working to become a B Corp. Why do you want to become a B Corp?

We’re here to generate a profit for SHINC, but we also want to look at the bigger sustainability picture. From helping ports reduce the time ships spend in port and thus reduce emissions to reducing the amount of paper used in the laytime process by going digital. Every little bit helps towards the greater goal.

And you’ve pledged to give one per cent of your revenue to Surfers Against Sewage. Are you a surfer?

I call myself an attempted surfer. I moved to Cornwall 21 years ago to surf, and I’m still learning how to do it properly.

Are you a serial entrepreneur?

Well, I’m on round two, having sold G-ports in 2017, so I guess so. I ran little businesses at school, but don’t know if they count.

What’s the most important thing about you that I don’t know?

The shipping motto is My Word is my Bond. I believe in it. It’s how I’ve been brought up in shipping and life. I’m a My Word, My Bond person. I’d like to think that I live my life like that.

What drives you?

I have learned, with age, that I should do things I enjoy. I enjoy the world of shipping. On a Sunday night, I don’t go to bed with a heavy heart when I think about going to work the next day. I do it because I’m interested in it and enjoy it.

I work on this project in my head 24 hours a day, SHINC! But there is flexibility in it. I was up at 4 a.m. this morning talking to the Far East, but then I did the school run. I can then do the afternoon school run or go to the gym and work later in the evening. It’s not nine to five. It’s not a market that opens from nine till five.

© Commodity Conversations ® 2023

ECRUU is turning 5!

We’re making some (exciting!) changes and we’ve been debating whether to continue doing this weekly report. 

What do you think? Let us know in the comments if you want us to continue.

Brazil’s agribusiness logistical map is about to be turned “upside down”. Ports in the Amazon region, the so-called Arco Norte, are expected to handle over half of the country’s soy and corn exports, up from 23% in 2010 and overtaking for the first time ports in the Southeast and South. It costs USD 300/mt to transport grain from Mato Grosso to Santos Port, double what it costs to take the grain to Miritituba in Para where it is taken in barges to the Port of Vila do Conde. 

Export costs could fall further if the plan for Ferrograo, a railroad connecting Mato Grosso to Para, goes ahead. Another railway project, the Nova Ferroeste, would connect Maracaju to the Port of Paranagua and help reduce transport costs by a third. Both projects are opposed by environmentalists but an official argued that one 100-wagon train would replace 357 trucks. The government also invited the private sector to submit projects to create a new route from Sao Paulo to the Port of Santos. The project also attracted objections from environmentalists in the past but an official said the idea would be to create a zero carbon highway. Analysts said logistics bottlenecks were the biggest challenge for Brazilian agricultural exports but investments such as these will give the country a competitive edge. 

On the other hand, local media reported a shortage of grain storage space last week in Brazil’s Mato Grosso. Despite recent investments, the country’s total grain storage deficit increased from 12 million mt in 2010 to 94 million mt in 2019. Ongoing dry conditions combined with stronger domestic demand have pushed up the domestic price of corn. One corn ethanol producer warned that corn was so expensive it didn’t make sense to make ethanol from it at the moment. The situation is expected to get tighter with many analysts downgrading the corn harvest due to the drought. 

Chicago corn futures rallied to an 8-year high last week. The USDA downgraded the US’ end of year corn stocks to a 7-year low due to higher demand from the ethanol sector as well as strong export demand. It also reduced the forecast for planned corn planting next year. Analysts expect prices will continue going up – fertiliser prices have risen by close to 100% in the past year and there continues to be strong demand from the ethanol and export sides. However, they flagged that China bought a lot of corn which it hasn’t shipped yet. 

Nestle is the latest to join the Rimba Collective, a USD 1 billion project that aims to protect and even reforest some 500,000ha involved in the Southeast Asian palm oil supply chain. Launched by Lestari Capital, the project already involves the likes of Wilmar and PepsiCo. Nestle said “we are evolving from a no-deforestation strategy to a ‘forest-positive’ one.” 

Olam reported that 2020 was one of its best years ever. The tradehouse saw a 36% increase in operating earnings to USD 678 million despite the pandemic. On top of that, it announced it was now able to trace all of the cocoa it sources directly, which represents 12% of the world’s cocoa beans. 

ADM expects that its plant-based protein business will overtake its crop trading business in size by 2050. The company said it was already the world’s biggest plant-based protein provider. ADM is planning to invest more in plant-based protein in China where it is seeing an uptick in demand. China is looking to boost food safety and reduce carbon intensive farming, which will contribute to the country’s plant-based protein market growing from USD 10 billion in 2018 to USD 14.5 billion in 2025, ADM noted.

There is talk that Impossible Foods is planning an IPO which could fetch USD 10 billion. The group saw USD 7 billion in retail sales in 2020, up by a third when compared to the previous year. Prospects are good, Reuters noted, given that Beyond Meat’s share price increased fourfold since its IPO two years ago. 

The Good Food Institute estimated that a record USD 3.1 billion was invested in the alternative meat market in 2020. However, US sales of meat still increased by 19% in the past year. But this is not all bad. A new study found that the US beef industry reduced its carbon footprint by 40% between the 1960s and 2018 while making 66% more beef – making it the most sustainable beef production system in the world. 

Finally, not all vegan burgers were born equal. You can find out here which one is the best for the environment. 

This summary was produced by ECRUU

Coffee traders and merchants move coffee from areas where it grows well (and cheaply) to places where it grows less well, or not at all. They transport coffee from surplus areas to deficit areas.  If coffee is worth more money in the US than in Brazil – and if that difference is more than the cost of shipping it (plus a little profit margin to make it worthwhile), then the trader or merchant will make it happen.

Coffee traders do not only move coffee from surplus to deficit areas. They also store and process it. They hold coffee at times when it is not needed (after the harvest) until a time it is needed (throughout the year). Coffee millers process coffee from a form in which it is not wanted into a condition in which it is wanted, transforming cherries into green beans. Roasters transform the green beans into roasted or soluble coffee.

Millers and roasters are, by definition, traders. A miller buys cherries and sells green beans, while a roaster buys green beans and sells roasted beans. Just as a trader may depend for his livelihood on his skill in buying coffee in one country and selling it in another, a roaster depends on his skill in buying coffee in one form and selling it in another. Millers and roasters are traders, and they need trading skills to perform their tasks correctly.

When you think about that a little, it becomes clear that what a trader is most interested in is not the outright price of coffee but the difference in the prices of that coffee in its different geographies, times and forms.  It is the price differential that matters, not the outright price. Traders like to limit their exposure to the outright, or flat price, of a commodity. They usually hedge their outright price risk, preferring to make their money on the differentials – the difference between the cost of the futures and the price of their particular coffee.

All traders – and that includes roasters – will try to reduce their risk of future price movements by hedging what they buy, taking an offsetting position for the same quantity in the futures market. Having purchased the physicals, a trader will sell futures as a hedge. When he sells the coffee, the trader will buy back their futures hedge; they no longer need to be protected against a move in the outright price of coffee because they don’t own it anymore.

Everyone involved in the coffee supply chain is taking and managing price risk. The farmer is perhaps taking the most significant risk by growing coffee in the first place. He may try to offset some of that risk by selling in advance – selling something that he doesn’t (yet) have.

The trader is taking a risk on the quantity that he buys but offsets that risk by hedging in the futures market. The roaster is also taking a risk; he has invested in his roasting machinery and has the risk that coffee prices will be too high to allow him to make a profit when he sells his roasted beans.

When I began my trading career with Cargill in the late 1970s, my first business card gave my title as ‘Commodity Merchandiser’.  But what is the difference between a trader and a merchandiser? Traders take positions on the markets, betting whether prices – or the differentials between prices – will rise or fall. Merchandisers move commodities along the supply chain, taking a tiny margin at each stage of its journey.

Traditional commodity merchandising has become more challenging and less profitable over time. It has become tough to make a margin just moving coffee along the supply chain.

One of the significant difficulties that merchandisers now face is that information is widely and freely available. It also travels incredibly fast. Technological change has reduced the potential for traders to arbitrage prices between geographical regions.

The other significant change is that governments and government agencies have pretty much left the coffee business. In the past, governments were often responsible for selling their country’s production, and this led to opportunities for corruption. Low-paid government officials were easy targets for unscrupulous traders; selling tenders were often rigged in favour of the traders that gave the biggest bribes. The markets have now been privatised, and this no longer happens.

In a world of instant information, it is no longer possible for merchants to take advantage of price differentials in various countries; instead, they now have to anticipate them. It is the point where a merchant becomes a trader. A trader predicts where shortages and surpluses will occur, and he takes a position in the market in anticipation of future price moves. As a result, analysis has become the lifeblood of trading.

It is not unusual for a trading company to employ more analysts than traders. Nor is it uncommon for traders to spend most of their time not on trading, but analysis. It is impossible to succeed in the commodity markets without an experienced group of traders and analysts to interpret and understand the mass of information that needs to be absorbed.

But analysis is not the only thing that you need to succeed in the physical commodity markets: you also need clients. Traders, therefore, have to keep in regular contact with their client networks, and they have to move physical coffee along the supply chain. There is now such an overlap between trading and merchandising that they are pretty much the same thing.

Merchandising coffee allows you to see the trade flows, helps with your analysis, and enables you to anticipate trading opportunities in the coffee market. But the margins on straight merchandising are now so thin – and sometimes even negative — that it is pretty much impossible for a pure coffee merchandiser to survive. The profits from trading subsidise the lack of profits, or the losses, on merchandising. In that sense, merchandising enables trading, and trading facilitates merchandising. They are mutually dependent.

© Commodity Conversations ®

This is an extract from my latest book ‘Crop to Cup – Conversations over Coffee’, available now on Amazon