No trade without financing
Climate changes and currency fluctuations have impact
We are often not aware of how global products touch our daily lives. People in China cook with oil made from soybeans coming from Brazil. Starbucks buys its coffee beans from Ethiopia, and the cotton from your t-shirt may come from Zambia. Large flows of these materials, called commodities, find their way around the world. How does trading in commodities work and how is Rabobank involved?
Agricultural raw materials and foods such as coffee, grains and sugar are being exported all over the world. After all, the regions where farmers produce their crops are often not the same as the regions where consumers live. Consider Brazil, for example, a sparsely populated country, but a large producer of soybeans and an important exporter to Asia. Or take coffee beans: many consumers live in Western countries where most coffee roasters and process plants are located. Meanwhile the coffee beans are being harvested in Africa and South America.
Large trading firms buy goods in bulk and sell all over the world. These trading firms may be confronted with logistical, administrative or financial barriers when selling their products all over the world. The quality of goods is an issue. Goods that are loaded on board a ship have to be the quality the purchaser agreed on. But also, will the purchaser actually pay once the ship with the goods docks at the port?
For centuries, the Dutch have been praised worldwide for their entrepreneurial spirit. The trading and shipping era of the Dutch East India Company has been behind us for several hundred years, but this is one of the first commodity trading examples and success stories which brought together supply and demand, as well as production and demand, worldwide.
Rabobank has a special dedicated team financing this the trade of raw materials: Rabobank Trade & Commodity Finance. This team, which consists of 200 specialists worldwide, is engaged to supporting its clients day by day. Rabobank has a network of clients both on the producing side and on the demand side. Rabobank finances the commodities and offers trading firms solutions to reduce financial risks. During transport specialists of Trade & Commodity Finance are monitoring the goods: where they are, for example, in ships or in storage, and in what state they are in. It is a specialised task that requires a lot of expertise and product knowledge.
80 market analysts
Knowledge of agribusiness comes naturally for Rabobank because it’s in our DNA. Rabobank Food & Agribusiness Research has more than 80 analysts keeping track of developments in the market, day in and day out. Every analyst has a specialisation ranging from dairy, fruit, fish, to sugar, coffee, cocoa and grains. They follow the news, speak with customers worldwide, are aware of the latest developments, and search for opportunities in the market. Rabobank shares this knowledge with customers through reports and meetings.
Trading in metals and energy
Commodity trade goes beyond agribusiness and the traditional activities of Rabobank. After all, to produce food you also need energy, oil and gas for example. And to build processing plants and farm machinery, metals are needed. Although Rabobank is a food and agri bank, Trade & Commodity Finance is also active in the global trade of energy and metals. Trading in metals such as iron, copper and aluminium, is also an important part of the food supply chain that we don’t normally think about at the supermarket or dinner table.
Global trading in commodities is very vulnerable to price fluctuations. Jasper van Schaik, Global Head Trade & Commodity Finance: 'The market has been turbulent for some time, because of failing crops, climate changes that affect harvest, overproduction and low oil prices. All this translates into challenging market conditions in which we see it as our responsibility to guide our clients through as best as possible.'
Influences on market prices
Many factors affect the market prices of commodities. The fluctuating demand for a particular commodity can affect the price. In the case of overproduction, the market price lowers. Climate changes can also be an influence. In 2015, several countries in South America suffered from the climate phenomenon El Niño. Certain crop harvests produced less, while other crops produced more in 2015. Also, currency rates affected international competition because supply from certain regions are cheaper than supply from other regions. The depreciation of a few currencies such as the Russian rouble, the Brazilian real, the Argentine peso, has made a few commodity producing countries significantly more competitive than others.
Rabobank's food and agri knowledge, trade and commodity expertise, long-term customer relationships and worldwide network has not gone unnoticed. The renowned British business magazine Trade Finance has named Rabobank ‘Best Commodity Finance Bank 2016’ in their global awards category for commodities in agri, metals and energy. A jury consisting of independent experts in the market evaluated a shortlist of banks active in the sector. In previous years, Rabobank won the ‘Best Soft Commodities’ award, which represents products such as cocoa, grains, cotton, coffee and sugar. With the ‘Best Commodity Finance Bank’ award, Rabobank is now being recognised as a worldwide leader in also Metals & Energy commodities such as iron, copper, oil and gas.