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<\/strong><\/p>\nFausto Filice was head of wheat trading for Cargill before moving to Bunge in 2013. He retired from the corporate world in 2019 and now lives in Verbier, Switzerland. I asked him how the wheat market has changed over the years.<\/strong><\/p>\n Wheat was the main focus of the trading floor when, in 1987, I joined Cargill Geneva after two years in their Milan office. The top managers in Geneva were all former wheat traders, and wheat was the commodity with the most opportunities. It generated the bulk of the profits.<\/p>\n At that time, trading meant making deals; wheat was the commodity with the most opportunities to make deals. The Soviets and Chinese were the big players. Striking supply deals with them gave you a significant advantage in market knowledge. Other governments were also willing to make deals secretly.\u00a0 Some of the more notable deals were even kept secret from young traders on the trading floor for several days!<\/p>\n There were also government entities on the supply side: the Australian Wheat Board and the Canadian Wheat Board made secret deals with big buying entities; monopoly players dealing with other monopoly players.<\/p>\n Wheat feeds people directly and is the commodity that is most susceptible to government involvement.<\/p>\n It was also the period of big export subsidy wars; the US and EU were trying to gain market share and reduce their costly intervention stocks. The business was about having large trades in the books and then \u2018bidding\u2019 Washington and Brussels for the highest subsidies. It was when prominent global players like Cargill, Continental, and LDC had a significant competitive advantage.<\/p>\n All of this has changed over time as the wheat market has progressively liberalised and privatised.<\/p>\n How would you describe the wheat market today?<\/strong><\/p>\n The wheat market evolved in the 2000s as the Black Sea became an increasingly prominent player. At the same time, we had the liberalisation of Canada and Australia, so those markets also opened to traders.<\/p>\n There are no dominant players in today\u2019s global wheat market \u2013 and no more large secret deals.\u00a0 Instead, many small companies are originating, marketing and shipping wheat from one or two origins, often serving specific customers with specific quality requirements.\u00a0 Large multinationals like Cargill, Bunge and LDC try to compete with these smaller companies in the various wheat export geographies, but they are often the 4th<\/sup>, 5th<\/sup> or 6th<\/sup> player in these areas.<\/p>\n The large trading companies retain a competitive advantage: although they may not be the biggest in any of the significant exporting corridors, they participate in all of them. \u00a0Cargill is a big player in soft red winter wheat in the US, but they are not the largest. Likewise, they are big players in spring wheat from the PNW (Pacific North West), but they are not the biggest.\u00a0 The same reasoning is valid for Bunge, LDC, ADM or Viterra. The result is that even though these companies don\u2019t dominate trade flows, they have the best global overview of flows and, consequently, the global supply and demand.<\/p>\n Today the global wheat market is highly fragmented, with dozens of smaller niche players, strong in their origins but without a global overview. Only a percentage of what goes on in the wheat market is visible; many private deals are going on in the background.\u00a0 It makes things interesting.<\/p>\n Over your career, you have traded corn, wheat and soy. Which do you prefer?<\/strong><\/p>\n I prefer wheat. It is more complicated than the other grains. Yes, there\u2019s a global wheat market, but, as I said, it\u2019s a compilation of smaller niche markets that intersect within themselves, but only partially.<\/p>\n What advice would you give to a young trader in the wheat market today?<\/strong><\/p>\n If you\u2019re a young wheat trader, you\u2019re most likely working for a company that is a niche player. It could be a Russian, Ukrainian or Romanian company working exclusively out of the Black Sea area. Or it could be a French or German cooperative. You will be a specialist in your region but ignorant of other parts of the globe. I would encourage you to learn as much as possible about the different areas and how they work.<\/p>\n For various reasons, different countries – and the buyers in those countries – buy specific qualities. The spreads between these qualities can be technical.<\/p>\n Wheat is not wheat. There are perhaps as many as 20-25 different types of wheat traded, and I would advise you to learn as much as you can about the relationships between them.<\/p>\n You can trade these differentials while learning to understand the nuances between the different origins and qualities and how and when they intersect. This knowledge will allow you to have an opinion on the overall direction of the market.<\/p>\n Agricultural commodities are weather-based, but you have to consider all the political drivers, whether a change in Chinese policy, Russian or Argentinian export taxes or Brazilian strikes. These factors are constantly changing. You have to be able to weigh those variables the right way. It\u2019s like a never-ending game of chess.<\/p>\n Would you recommend a young person to join the sector?<\/strong><\/p>\n Absolutely!\u00a0 I find commodity trading more interesting than, say, looking at corporate balance sheets or bond yields. Commodities are much broader; they encompass more facets of the global economy.<\/p>\n Commodity trading is the pulse of the world economy.<\/p>\n Thank you, Fausto, for your time and input!<\/strong><\/p>\n \u00a9 Commodity Conversations \u00ae 2021<\/p>\n This is an extract from my upcoming book, Commodity Crops \u2013 And The Merchants Who Trade Them.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":" Fausto Filice was head of wheat trading for Cargill before moving to Bunge in 2013. He retired from the corporate world in 2019 and now lives in Verbier, Switzerland. I asked him how the wheat market has changed over the years. Wheat was the main focus of the trading floor when, in 1987, I … <\/p>\n