CTRM for Ags & Softs
Commodity Trading and Risk Management
Over the last 20 or so years , driven in large part by the emerging economies in the Asia Pacific region , demand for commodities of all stripes has catalyzed the growth of global wholesale commodity markets and brought new levels of trading sophistication to what had previously been merchant-oriented markets focused almost exclusively on ensuring efficient flow of products from source to markets . However , driven by the globalization of commerce , a new software category , widely known as Commodity Trading and Risk Management ( CTRM ) software , emerged to support these commercial activities . At the highest level , CTRM can be defined as those software applications , architectures and tools that support the business processes associated with trading commodities . CTRM software therefore comprises a broad set of functions that can vary considerably depending on which commodities are traded , what assets are employed in the business , where those assets are located , and what the company ’ s business strategy and associated business processes are . CTRM software continues to evolve in lockstep with the industry and has , in recent years , been extended into the commodity management area .
‘ CTRM ’, again the acronym for Commodity Trading and Risk Management , originated from what is now a subcategory of CTRM software known as ETRM ( Energy Trading & Risk Management ) software . ‘ ETRM ’ was first coined as a software category name in North America sometime after electric power de-regulation took place and was subsequently defined by Vasey & Bruce ( 2006 ) and by Vasey & Reames ( 2010 ). Later , the term was modified to ‘ CTRM ’ in order to encompass other commodities beyond energy such as softs , ags , metals , emissions and freight rates .
In fact , CTRM software has become more difficult to precisely define in recent years . The core functionality of a CTRM system is simply to capture trades , calculate and manage position , report on exposure and account for those various transactions . In reality , there are many variations of detailed functionality that might be found in any particular solution depending on its particular commodity “ footprint ”. However , as the category has matured , concentric circles of incremental functionality have been added through the years to expand the market reach of these products . These would include areas like commodity management , vessel management , storage and facility management and production management . The edge of what actually constitutes CTRM has become increasingly fuzzy , and it now overlaps with other application areas such as traditional ERP , Accounting , Supply Chain Optimization , Operations Management , Treasury Management and others .
Despite this growth in functional capabilities and market reach , it could also be argued that risk management , business intelligence and other analytical and simulation / optimization functions are increasingly being addressed outside of CTRM . This phenomenon is perhaps driven by an increasing number of companies utilizing several different trade capture and transaction management solutions that then require an overlay of integration in order to extract data at a business unit or geographic level , aggregate and generate enterprise level reports of financial positions , profit and loss and risk exposures . It appears that there is a growing recognition that transaction management and analytics should perhaps be two different environments for performance reasons .
The footprint of what constitutes a CTRM software solution continuesto expand and grow rapidly . Beyond tracking and managing the buying and selling of commodities , the CTRM software category has increasingly grown deeper into the commodities supply chain . As wholesale commodity price volatility has increased in recent years , food processors and CPG firms have faced a difficult period as profits have been squeezed . Given the price sensitive nature of the consumer markets , these firms have had an increasingly difficult time managing prices of finished goods . This difficulty has resulted in inconsistent financial performance and increasing risk for a broad range of businesses that rely on ags & softs commodities as their primary feedstocks . In reaction , these businesses have stripped away costs and inefficiencies from their supply chains and increasingly overhauled the way in which they manage the procurement and planning functions in
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