“….And the beat goes on” was a song by The Whispers from the late 70s when I first got involved in the wonderful world of commodities and you know what, 40+years later it pretty much describes where we are today raw materials are still dug up, crops are still grown and harvested, transportation and logistics move it from its place of origin via intrinsic supply chains to the ultimate consumers, (that’s us by the way) who create the demand in the first place.
If you read the papers, check the news daily as we tend to do you would think we have a commodity world in crisis scandals in the Far East, shortage of containers, allegations of fraud abound ,abound, “supply chain financing” becoming a dirty word but the reality is very little has changed. Commodity trading has and always will be about geographical arbitrage, supply and demand, price and logistics The premise is not complicated but binding the above elements together in a profitable way is where the skill lies.
The talk about a supercycle the magic letters “ blockchain, the aim for “clean energy”, the catchphrases like “from farm to fork” are about trying to make the commodities sexy and almost cuddly to the outside world but to the established traders here it’s just more noise and they will just get on with doing what they always do trying to make a profit from the supply chain.
Raw material prices are rising but you know what, at some time they will go down as well, NO ONE knows where prices will be this time next year.
There will be frauds in the future, and everyone will navel gaze and ask what lessons have we learnt to stop this happening again but they will, company fraud is hardly unique to commodities.
The basic rules for financing this industry haven’t changed despite all of the above Here’s a couple of them from my grey haired rule book
- Don’t believe a trader where every trade is profitable.
- Avoid people who can only talk in acronyms or blind you with technical talk.
- Verify, verify, verify everything you receive be it information or documents.
- Desperate people do desperate things.
- If you can’t see it, touch it, feel it, taste it, smell it, lick it you shouldn’t finance it.
- Greed is not good.
- A glossy presentation is an advert not information.
- The smooth talking, CEO/CFO is charming and charismatic, but he is not necessarily your friend.
Basically, ignore all the noise out there and get on with it The sun is still rising, the world is still turning, and commodities are still moving.
The commodity world in crisis, I don’t think so ….