Shifting Trade Policies and Market Dynamics: What’s Next for Agri-Commodities?

Disclaimer - The views expressed in this article by Vidya Bhushan are his personal views in his personal capacity and not as the company’s representative.

Welcome to Globoil Post, your premier source for the latest insights in the global edible oils and agri-trade sectors. In this special feature, Vidya Bhushan, a seasoned expert in agri-commodities trading and risk management, delves into the complexities of today’s volatile market. As geopolitical tensions, climate change, and ever-shifting trade policies continue to redefine market dynamics, Vidya shares strategic approaches to navigate these challenges and capitalize on emerging opportunities.

The global agricultural commodities market has experienced significant volatility due to geopolitical tensions, climate change, and fluctuating trade policies. How do you leverage your extensive experience in agri-commodities trading and risk management to navigate these challenges?

Indeed, the market dynamics have not only changed but also keep evolving with geopolitical tensions, frequent changes in the policies, which is challenging for the Risk Managers/Traders/Refiners on a day-to-day basis. Being part of a trade which is impacted by global actions, we have no other option but to adapt to the new normal that is not only about direct supply & demand of the commodity you trade in but also how the indirect factors can influence the price. Personally, I would suggest to navigate these challenges by following:

• Impact Analysis: Analyze the event, whether the factor is temporary in nature or it has a structural impact on a long-term basis, and plan your strategies accordingly. E.g., a missile attack on a vessel inbound to India will have a temporary supply chain disruption, which will result in delay on arrival or vessel diversion, but a change in domestic biofuel policy by a producing country will have a long-term impact directly on the exportable surplus of the commodity.
• Think Global, Act Local: With so many changes in the international arena, as often we try very hard to take advantage of all those changes and win, whether or not it has a direct immediate impact on our domestic market. There is nothing wrong with being ambitious to win every time because that defines a life of a Trader/Risk Manager or an Entrepreneur. What we should be mindful about is whether you are chasing the right thing which is sustainable in the long term. So, my humble suggestion will be to have the awareness of what's happening globally and then bring it down locally to your area of operation and how it's going to impact you, whether it’ll have immediate impact or will have some lag and take your call accordingly.
• Risk Appetite: Define your risk appetite, like we do for an investment where we allocate a certain percentage of our portfolio for the High Risk-High Reward instrument. Allocate a certain percentage of your volume based on your risk appetite to go for all the price fluctuations that happen based on the unexpected changes and balance to what you call structural business/margin so that you are not risking your structural business for your aspiration to conquer the world.‍

The edible oils market is influenced by a variety of factors, including changing consumer preferences, sustainability concerns, and price volatility. How do you see these factors shaping the market dynamics and pricing trends in the near term?

‍With higher disposable income and edible oil constituting a fraction of consumer monthly spending, consumers prefer to go for the best. Today’s consumers, irrespective of whether they are Millennial or Gen Z, rural or urban, are more health-conscious. This is why they analyze what they are buying/eating, resulting in an increase in demand for oils which are perceived to be healthy. But as far as trade is concern it is also true that price still plays an important part in deciding the demand for particular oil. In recent times, we have seen that the relative spread between all oils is narrowing, challenging the core consumption of all the oils. The ability to switch has increased, and barring a few usages, all the oils are being used for all purposes depending on the price. Palm oil, which is perceived as frying oil because it was cheap, is trying to break the historical narrative to show it is no longer so. Sun oil, which was considered to be a premium oil, has also been used to produce biodiesel. Therefore going forward, the relative spread will still continue to be a deciding factor where demand will switch to Soft oils if Palm remains expensive, and vice versa. The concept of core demand will keep evolving with price spread.

The landscape of risk management in agri-commodities trading is constantly evolving with the integration of new technologies and data analytics. What recent advancements in risk management practices have proven to be most beneficial for managing credit and counterparty risks in the agricultural sector?

‍Numbers speak louder than assumptions. So, data analytics has become a part and parcel of our daily life whether it is for Sales or for Risk Management. As its very difficult to know everything that is happening in the market, price is the best reflection of how the market players are perceiving the situation. Various tools in technical or fundamental analysis also try to establish how the market has behaved or will behave. There are various tools in the market which do algo-based analysis, which makes life easier when it comes to price risk management. When it comes to risk, we often talk about price risk management and tend to somewhat give less weightage to credit and counterparty risks, which are equally and/or more important. We need to analyze counterparts not only based on what price they are paying but how they are going to react to the volatility and whether the company is worthy enough to absorb such volatility. We should ask ourselves there must be a reason that a counterpart is paying a higher price than the market because in this fast communication world it may not be wise to assume that someone is not aware.