Agriculture Commodity Trading

1
Agriculture Commodity Trading

• Understanding Trade Flows
• The Profit Imperative
• Choosing the Location
• Transaction Cost Budget
• Risks
• Price Determination
• Buying Decision Farmer or Trader ?
• The Other End Commodity Marketing

2
Understanding Trade Flows

• Demand and Supply
• Producing and Consuming Months
• Business Environment of Producing and Consuming
  Areas
• Organizational Fit in the Environment

3
Understanding demand

• What products the consumer buy, in what volume
  and price range
• What characteristics must the product have
  (composition, quality, packaging)?
• What transport and distribution system will
  deliver the product in the form, cost range, and
  time frame required?
• What processing technology is required to meet
  these standards?

4
Understanding the supply

• What supplies are needed to serve this market
  (volume, quality, price)?
• What methods of procurement are required to meet
  these supply requirement?

5
External Environment Demand of commodity

• Consumer Analysis
• - Market Segmentation
• - Consumer Needs
• - Purchasing process
• - Market research
• Analysis of Competition
• - Market Structure
• - Basis of Competition
• - Institutional Constraints

6
Internal Environment Marketing and Buying

• Internal Environment - Marketing Plan
• - Pricing
• - Distribution
• - Promotion
• Internal Environment Buying
• - Quantity
• - Quality
• - Cost
• - Time
• - Method
• External Environment supply of commodity
• l

7
External environment - supply

• What is commodity production in the area?
• - Area under crop (A)
• - Yield of the crop (Y)
• Gross production (P) AY
• What is net availability (NP) P K
• Where K includes
• - on farm consumption
• - fresh consumption
• - competitors purchases
• - post harvest losses

8
External environment - supply

• If demand is more than net availability?
• Alternative strategies?
• - Increase the area under crop
• - Increase the yield of the crop

9
External environment - supply

• How to increase the area under the crop?
• Alternative strategies
• - substitution effect within crops
• - possibility of expansion of arable land
• Instruments
• - Higher price of the crop to make the crop
  more remunerative than other crops
• - Availability of economic resources

10
External environment - supply

• How to increase the yield?
• - We have to understand the reason for current
  low yield
• - Present use of agro-chemical input
• - Barriers to increase the use of agro-chemical
  inputs?
• - Limited channels for distribution of inputs
• - Lack of financing institutions
• - Lack of knowledge

11
External environment - supply

• What was the total production pattern?
• - Production levels in the past?
• - Degree of Variability?
• - Causes of Variability?
• What is the usage pattern of the area planted?
• - Variation in area?
• - Area economically arable but uncultivated?
• - Productivity of new land?
• - Extent and feasibility of crop shifting?

12
External environment - supply

• What is the yield?
• - Variability in yield?
• - Causes?
• - Extent of usage of agrochemicals and improved
  seed?
• - Barriers to increased usage of inputs?
• How profitable is the crop?
• - Profitability relative to alternative crops?
• - Cost structure relative to alternative crops?
• - Perceived risk?

13
External environment - supply

• Is there competition in trading among similar
  companies?
• - Number of competitors?
• - Size of their needs?
• - Their procurement methods?
• What are the probable crop losses?
• - From rodents, insects, handling, storage?
• - Measures to reduce losses?
• - Adequacy of on and off-farm services and
  storage facilities?

14
External environment - supply

• How does handling and transport affect quality?
• - Personnel adequately trained?
• - Availability and quality of transport?
• - Quality loss due to delayed transport?
• How does storage affect quality?
• - Type of facilities available and required?
• - Quality of facilities?
• - Nutritional deterioration?

15
External environment - supply

• What is the seasonable harvesting pattern?
• - Period of harvest?
• - Effect of seed on timing?
• - Effect of planting on timing?
• - Costs and benefits of changing the
  harvesting pattern?
• What facilities are required by the seasonal
  pattern?
• - Storage capacity for peak inventory?

16
External environment - supply

• When and for how long will the supply be
  available?
• - Agronomic testing period?
• - Planting to harvest period?
• - Farmer financing during start-up period?
• - Pattern of life-cycle yield of perennial
  crops?

17
External environment - supply

• How do logistical services affect commodity
  costs?
• - Existing transport charges?
• - Contribution of transport to prices?
• How does governmental involvement affect
  commodity costs?
• - Price supports?
• - Import or service subsidies?
• Should spot prices be used?
• - Prevailing spot prices?
• - Variability during and across years?
• - Competitors buying practices?

18
External environment - supply

• What are the number, size and location of the
  operators in the structure of the existing
  system?
• - Number of producers, transporters, and
  buyers?
• - Implications for organization and control of
  the system?
• - Percentage of crop handled by each?