Part Two – The Future of Trade Houses
Ivo is a Certified Public Accountant from the National University of Rosario (UNR), with a master’s degree in economics from Universidad Francisco Marroquín. He has completed executive education programmes at Oxford University, Harvard Business School, and IMD Business School.
He was the former Global Head of Soybeans and Sugar at Cargill in Geneva, where he was also responsible for the company’s operations in the Middle East and Africa. He was the former CEO of Alvean, the world’s largest sugar trading company.
Ivo currently serves as a non-executive director on the boards of several international agribusiness and livestock companies. He is a visiting professor of Agricultural Commodities at the University of Geneva, Erasmus University Rotterdam, Universidad Torcuato Di Tella (UTDT), Universidad Austral, and UCEMA. He is the co-author of Commodities as an Asset Class (Palgrave Macmillan, 2022).
Agricultural Commodity Traders often receive a poor rap. Is it justified?
Throughout history, commodity traders have been the people that folks love to hate, blaming them for high prices during times of shortage and low prices during times of plenty. They have also traditionally underestimated the significant role that traders play in getting food to the table. I recently re-read Carl Menger’s “Principles of Economics”, published in Vienna in 1871, and came across this in Chapter 4. It is worth reading to you now.
Thousands of persons are intermediaries in trade, from which they derive their incomes. Because they don’t contribute directly to the physical augmentation of goods, their activity has often been considered unproductive.
However, an economic exchange contributes, as we have seen, to the better satisfaction of human needs and the increase of the wealth of the participants, which is just as effective as a physical increase of economic goods.
All persons who mediate exchange are just as productive as the farmer or manufacturer.
The end of the economy is not the physical augmentation of goods but always the fullest possible satisfaction of human needs.
Traders contribute no less to attaining this end than persons who were, for a long time, and from a very one-sided point of view, exclusively called productive.
What about speculators? Should they be allowed to participate in the food supply chain?
Thales of Miletus, who lived around 624–546 BCE, is regarded as one of the first philosophers and a pioneer of scientific reasoning. According to later accounts, he used his understanding of astronomy to predict a particularly abundant olive harvest. Based on this forecast, Thales didn’t speculate on the olives themselves. Instead, he secured exclusive rights to the local olive presses—the refining capacity—at a low cost, well before demand surged.
When the harvest proved plentiful, producers scrambled for access to processing infrastructure, and Thales was able to rent out the presses at a much higher rate, earning significant profit by positioning him self in a critical segment of the value chain.
Diogenes Laërtius recorded this story in the 3rd century CE. He praised Thales not for seeking wealth but for showing that a philosopher, using superior understanding and foresight, could easily succeed in practical matters if desired. For Diogenes, this was a moral and intellectual virtue—a demonstration of wisdom applied to real-world dynamics.
What Diogenes admired as a sign of insight and discipline might today be seen by some as raising questions about the legitimacy of proprietary knowledge and strategic foresight. Yet, in essence, what Thales did is not fundamentally different from what commodity traders do today: interpreting market conditions with insight and securing positions at critical leverage points across infrastructure and the broader value chain.
Let’s learn to appreciate—and even welcome—the role of speculators as they enhance the quality and liquidity of markets. By taking on part of the risk, speculators support commercial hedgers in managing their exposure, ultimately improving the overall efficiency of the value chain. They also tend to trigger market movements more rapidly than pure commercial operators, accelerating price discovery. This allows markets to respond quickly to new information, address imbalances earlier, and often anticipate fundamental problems before they fully materialise.
One of the most overlooked yet essential roles that traders play in commodity markets is their ability to manage the structural asynchrony between supply and demand at different stages of the value chain. Farmers and end-consumers rarely come to the market in a coordinated fashion—their needs are misaligned in time, geography, and form. Traders enter this gap, assuming a unique role as counterparties to both sides of a transaction, making the market operational. This perspective helps to dispel the simplistic notion of the trader as a mere intermediary who takes a cut.
Most arbitrage opportunities a trader executes—geographic, temporal, or based on product transformation—are not “back-to-back” deals. They require the trader to take and hold a position in the market, often across uncertain timeframes, until the trade fully materialises. In doing so, the trader must commit capital, assume risk, and adopt a speculative stance, making informed judgments about how market conditions will evolve.
This speculative dimension is not incidental but intrinsic to the trader’s function. By absorbing uncertainty and bridging mismatches in timing, location, and form, traders create liquidity, stabilise flows, and enable the physical trade of commodities across global markets.
Market exchanges must define and enforce the rules to ensure convergence between derivatives and physical market values. For those interested in a deeper understanding of the role of speculators in commodity markets, I highly recommend Scott Irwin’s book Speculation by Commodity Index Funds.
The Swiss government published a report in December 2024 that also downplays the supposed negative impact of speculators on price formation and offers a more nuanced view of their role in the system.
What are the biggest challenges facing agri-trading companies?
People often argue that trading companies are losing their competitive edge as information becomes more democratic and widely accessible. While there is some truth to that, I see it differently.
Trading companies function as data interpretation frameworks—sophisticated systems integrating people, tools, and organisational culture to process information and form market views. Companies often reach different conclusions even when accessing the same data. And despite greater information access, trading companies still have a clear edge over the average market participant. That divergence in interpretation is precisely what gives rise to functioning markets.
Sustainability, however, poses a more complex and structural challenge. There’s a fundamental trade-off between traceability and tradability—greater traceability tends to limit optionality. Agri-trading companies often capture less value from traceability than from traditional trading activities. Some argue that traceability enables better margins, but I remain unconvinced. Managing a global supply chain is more like running a supermarket than a boutique—scale and efficiency are critical.
Sustainability initiatives tend to increase operating costs, and recovering those costs across the value chain is often difficult. Overall, I don’t view these efforts as strong drivers of profitability, except in a few niche markets.
An additional growing concern is the sector’s increasing dependence on government biofuel policies and regulations. It’s one thing to run a business that serves farmers and consumers, focusing on efficiency and value creation. It’s quite another to rely on government mandates and subsidies. That dependence introduces a high degree of strategic uncertainty and places long-term planning at the mercy of political decisions.
Will there be further a) consolidation and b) regulation?
There is always pressure for more regulation, often, unfortunately, from those who don’t fully understand how the business works. This pressure tends to intensify during periods of sharp price swings. That’s why it’s essential to keep explaining how commodity trading truly functions—to prevent regulatory “cures” worse than the supposed disease.
Meeting this challenge requires trading firms to raise their public profiles and proactively engage in the policy conversation.
Regarding consolidation, the industry moves in cycles: mergers tend to occur when profitability is low, while strong margins attract expansion and new entrants. We’re now approaching a major merger between Bunge and Viterra. In the short term, it may reinforce the perception of increased concentration. But we’ve seen similar moves before, such as Cargill’s acquisition of Continental Grain, which was comparable in scale and market impact.
History shows that one plus one rarely equals two. People often assume that mergers consolidate market share seamlessly, but it seldom plays out that way. While they may lead to internal efficiencies, some market share is frequently lost externally. Customers and suppliers value optionality and tend to diversify relationships rather than consolidate them, creating opportunities for other players to step in.
At the same time, regional actors are expanding in many parts of the world, and governments are becoming more active in commodity markets. It is happening directly through state-owned firms like CIL and Russian grain exporters and indirectly via sovereign wealth fund investments. These players often enjoy different access to financing, which can alter the economics of the business and add a new layer of complexity to the competitive landscape.
That leads to my next question about the government entities buying or investing in ag trading companies. Is it a good thing, and how will that change the markets?
It is undesirable if governments restrict access to competition.
Sovereign wealth funds buying agri-trading companies can be positive regarding the capital structure, making them more robust.
Would you invest in an agri-trading company? Are you optimistic about their future?
If you’re prepared to endure profitability cycles, you can likely achieve solid long-term returns. But you’ll also have to navigate some tough periods along the way. It makes me question if public companies are the right model for the sector.
Thank you, Ivo, for your time and input.
You can read the full text of this interview in the second edition of my book, Commodity Conversations – An Introduction to Trading Agricultural Commodities
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