Europe’s granary exporting over 30 million tons of grains per year with positive outlook. New markets like India, are open to Ukraine grains and investments in infrastructure aims to facilitate trading. Wheat, Corn, Soya and other agricultural commodities are amongst the most tradeable commodities. Despite the different TECHNICAL CHARACTERISTICS among the commodities, agricultural commodity suppliers are classified in three major categories. a) The Farmers or first degree production network. b) The Elevators or centralized logistics and minor processing facilities, private or public. c) Traders
a) The Farmers are the first degree of agricultural production, they are varying in tonnage capacity, providing competitive rates on pre-booking with no additional services offered (Quality assurance, Logistics) or financing.
b) Elevators, state or private, facilitate in commercial and logistics efficiency. Farmers are given the option to trade their crop combined with others accessing wider customer base (Exports). Logistics services operate as outsourcing logistics services for farmers. Oftentimes, farmers own the quantities and outsource elevators services (Logistics, minor-processing like de-hydration etc.). Also facilitates quality control inspections and provide railway transportation.
c) Traders. Established traders own network of farmers provide large quantities and logistics services, the ability to sell on credit (L/C) accuracy yet inflexibility on GMO list of options. and flexible delivery terms (i.e. Delivery at Port or Free on Board). At a price! Amani’s advance/preliminary work is continuous regardless of a business request in order to build and keep an “Up to Date” commercial and operational database.
Under our given infrastructure we have two main scenarios available to exercise the testing shipment,
|Scenario – 1 Purchasing from Farmers/Elevators||Scenario – 2 Purchasing from Traders|
|Price||The most competitive price available into the network.||Selling prices are not competitive.|
|Quantities||No single elevator can cover a shipment’s needs. Several elevators shall be employed.||Advanced negotiations secure quantities available for trading from a single trader.|
|Technical Characteristics||Testing procedures, risk and cost on AMANI.||Reliable suppliers. Testing still necessary but risk is limited while penalty clauses can apply.|
|Delivery Terms||EXW. Logistics risk and expense on AMANI. However railway infrastructure facilitates transportation efficiency.||DAT/FOB. Option to deliver at port or on board a vessel.|
|Payment Terms||No credit or flexibility. Payment within a short period of time after testing.||Established business relationships can provide credit. (i.e L/C).|
Below a flowchart were Scenario -1 key actions are shown,
Starting with the BUSINESS REQUEST, we are matching request and market from our DATABASE, we negotiate > fixing with FARMERS/ELEVATORS, quality control agent approves or not, and if yes, we proceed with payment and documentation. Logistics assignment for LAND and Charterers nomination for SEA , transportation are concluding the process.
Similarly, buying from a trader, here are the main key points,
Different from Scenario -1 in services a trader provides (Delivery at port or “on board” a vessel) ….at a price!. Potentially and in a long-term, financing (Purchase on Credit) may also modify the above process.
Concluding, above information serve as a base to our discussion as physical commodities trading is far more complicated as regards the
- Technical characteristics of the commodities and the control of quality,
- The market practitioners and the network