Reports CTRM for Agricultural and Soft Commodities | Page 7

CTRM for Ags & Softs
The web-based survey wastargeted at end-users and known vendors in the space in an attempt to identify vendors and
software products that were unknown to us. In fact, we did not discover additional vendors through this research.

Definitions and Scope
Essentially, agricultural and soft (ags & softs) commodities are those that are ‘grown’ as opposed to mined or extracted
(hard commodities). They may also be defined as comprising any commodity except energies or metallic or mined
commodities. In essence, they are among the oldest of traded commodities including wool, grains, edible oils, animals
and meat products, dairy products, lumber, spices and beans. More recently, some market participants consider biofuels
as a part of the softs category, though we would be inclined to include these in energy.
Traditionally, ComTech’s activities had been focused on software solutions that supported wholesale trading activities meaning the buying and selling of both physical and financial commodity ‘products’ in established and mature markets
either Over the Counter (OTC), at an exchange, or via a broker. This does occur for many ags &soft commodities, but
there are also a large number of unlisted ags & softs where trade occurs in the physical commodity only. However, as
these markets mature, history has demonstrated that financial products emerge to support price discovery and hedging in
a broader number of ags & soft commodities, and we do expect that to continue. However, the fundamental nature of the
market and its evolution does complicate the picture quite a bit, as many of these commodities are essentially procured,
used orre-sold as opposed to ‘traded’.
The fact that these commodities are ‘grown’ adds unique “flavor” to their market dynamics. Each commodity has its own
supply chain and quality criteria, adding significant complexity to the physical side of the business. These quality criteria
are almost always used in pricing the commodity.Additionally, weather-driven growing conditions will always impact
production and is the critical factor on the supply side of the market. Furthermore, because some of these commodities
have been physically produced and sold for centuries, archaic business practices have often survived and thrived adding
further complexity. Additionally, as markets have grown more global and sophisticated in terms of commercial activities,
firms that have historically been price takers have become more interested in controlling their costs and improving their
profits through more active buying, selling, storing and hedging their commodities. This proactive approach to managing
profits along the supply chain has become known as ‘Commodity Management’ and has led to much of the overlap
between traditional ERP and “traditional” CTRM software.

© Commodity Technology Advisory LLC, 2016, All Right Reserved

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