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Introduction
Over the last several years, the phenomenal growth and
expansion of wholesale commodity trading has begun to
have a significant impact on both business practices and
strategic thinking across commodity supply chains.
Producers and processors of raw materials (commodities) and sellers
of finished goods that rely heavily on commodity feed stocks have had
to come to terms with a business environment of generally increasing
and significantly more volatile prices for their raw materials. Despite
some weakening in commodity prices on the back of a stronger dollar
and increased supply recently, volatilities remain problematic and in
the longer-term, prices will continue to increase as the global population continues to grow and as more of that population become
consumers of goods.
Recently, many of the larger banks have begun to exit commodities trading under fire from various regulators and a
set of new regulations. Their position has arguably been taken up
by large commodity trading firms, with companies such as Glencore,
Mercuria, and others expanding their operations and filling much of the
liquidity vacuum left by the exit of the banks. These large commodity
traders have also experienced much thinner trading margins and have
increasingly sought to secure physical commodity supply by purchasing producers and their assets in order to de-risk a portion of their
supply chain. In the future, the boundary between producer and
trader may be increasingly blurred.

© Commodity Technology Advisory LLC, 2014