I've spent the past few weeks interning at a commodity trading firm and I'm interested in speaking with some more experienced traders to answer a few questions about the role (and how my firm is different/similar to trading at a larger shop).
I can post some questions here for the good of the group but I don't remember any ag traders on WSO so I'm hoping that we have a couple somewhere.
I started on the grains & oilseeds desk before transitioning to metals, but still talk on a daily basis to all those guys
what do you want to know?
What kind of strategies are used on the desk - fundamental, technical, quantitative? How do you compete against someone like a Cargill or Louis Dreyfus who has an edge from their physical presence? Is the USDA really cooking the books?
My shop is small and just works making markets on a cash basis and sometimes as a purchasing agent for some of our larger clients.
I am curious how commodity trading works at a bank/large commodity company. Do you use futures/other derivatives for anything besides hedging (and the occasional directional bet?).
I find myself quoting prices from origins, gathering freight costs, then throwing offers at mills and making (losing) money on the margin. Is this typical of most commodity trading or am I just scratching the surface?
Would you rather be working at a commodity shop or a commodity desk at a bank and why?
If I want to trade is their solid earning potential in physical products or should I look elsewhere?
Prop relative value
We compete against the cargills and bunges of this world. Well, money is made in a lot of ways. Physical grain trading shops can take bets on futures markets because they have a lot of info wall street guys don't have; we have contacts at the ports, in the elevators, etc.. I work in metals, and I find out when mine workers are going to strike before Bloomberg does. Any bet we make is purely fundamental.
There's also money to be made in optimizing freight and taking positions in freight. I.E a grain trader will sell you a 15k TM cargo on a 20k TM vessel. He might even make a small loss on this trade. But if he then finds an additional 5k TM to book on the same vessel and spread out freight costs he can make a lot of dough.
I don't know much about banks, but I would assume its just a lot of brokerage opps a-la MF Global, and market making on the derivatives aside. I assume some might have prop desks that trade quantitative.
On the banking side (commodity desk agriculture trading)...
I am curious how commodity trading works at a bank/large commodity company. Do you use futures/other derivatives for anything besides hedging (and the occasional directional bet?).
-> yes we use futures, options and other OTC derivatives for non-hedging purposes.
I find myself quoting prices from origins, gathering freight costs, then throwing offers at mills and making (losing) money on the margin. Is this typical of most commodity trading or am I just scratching the surface?
-> I think it depends on the type of grains business you are talking about. As an investment bank we don't (and can't) usually have a direct interation with millers, growers or end-users except in occasional events. I agree that such ground info is often quite critical in determining the demand side of the grain flows, and more so if you are involved in the cash business.
However, If you are mostly trading on the CME or other major grain exchanges, the macro perspective of the markets and supply & demand becomes more important as these markets and products are intertwined and often react to the same fundamental drives IMHO.
Would you rather be working at a commodity shop or a commodity desk at a bank and why?
-> In my case I didn't have a choice between the two and I doubt most people do. I can only say for a junior level since I'm quite junior myself, but it seems to me that the kind of qualities required to survive and succeed on a commodity desk is a little different from those required at a commodity shop (not that I know a whole lot about it, but I have a few friends) And it will perhaps depend a lot on your boss.
That being said, (and I'm putting myself out here), if you want a massive success in the business later in your career, it might be better to start grinding in the field with a prospect of later moving to a bigger place (like a BB, or ADM, Bunge sort of place) All the guys around here were at one time or another a commodity trader in the physical markets, except for a few options traders
If I want to trade is their solid earning potential in physical products or should I look elsewhere?
-> depends on your products... what do you mean by "elsewhere"? non grains markets or non physical markets?
Could you give a few examples? Would be appreciated.
I guess you gotta be more analytical and conformative to the rules and environments at a bank ... better or worse ... it's hard to say this in words but me and my peers have different experiences so far at differnet places.
Juniors at BBs or some Ag giants are mostly analysts, and remain so or become (prop) traders afterwards. From what I understand, other physical or cash market grain traders start as ops, schedulers or brokers/marketers (or whatever the term you guys use for matching physical buyers with sellers).
The usual role descriptions for agricultural analysts and other positions are similar to those in the energy market
Thanks a lot for the information guys I really appreciate it. Can anyone comment of the outlook of physical trading moving into the future?
Is Anyone Trading Corn/Soybeans? (Originally Posted: 07/11/2012)
I've been lightly following the drought for the past few weeks and want to know how its affecting people who actually make (or lose) money on nature. I believe I read that it is one of the worst droughts since the 90's, with something like 40% of the corn crop in good condition.
Is anyone trading in these markets right now? Are you making a killing? Or getting killed? What is the general sentiment among other traders right now?
I'm assuming, because almost everything we eat in the US is a corn/soybean derivative (unless you eat mostly organic), that general food prices will inflate in the next 6 months or so. Can anyone with more knowledge confirm/deny my assumption?
Play it safe and invest in nitrogen. I got myself some CF back in May after they nosedived as a medium-term bet on natural gas and corn... definitely a worthwhile strategy to take a step back and look at what these commodities immediately impact and invest in that rather than playing in the futures market where I know about as much as a grandma with $30,000 in a pension account. Corn is a shade under $7.25 right now which is amazingly high, but I guess if the droughts are that bad then maybe it's warranted. So much for that 166bu/A the USDA was trying to sell us on.
BH, am I missing something here? Why is a company that manufactures Nitrogen a good investment if you're long NatGas? Most of the costs attributed to manufacturing Nitrogen come from NatGas, no?
This drought is making my offices year. Fundamentally we shouldn't be at the highs we are currently because in reality we're only going to end up losing like 1.5 billion bushels (off ofinitial estimates of a 14.7 billion bushel crop). Today we settled low teens below yesterdays close and we used it as an opportunity to get longer. Decemeber corn will top $8 bucks before we see any rain. Come september I imagine we'll give some of it back but not even close to the gains we've made so far. Beans on the other hand will probably stay inflated atleast through March, when the brazilian crop comes in.
Yes. You're food will get more expensive. Feed mills are going broke on protein with Meal approaching $500 bucks and other co products at all time highs.
If the actual loss of production isn't what is driving these high prices, do you have any ideas on what is? Global demand? Fear of food shortages? Are worldwide ag industries facing droughts/declining outputs?
Question on using corn for animal feed: Do certain animals consume more corn-based food than others? Thereby increasing their price faster than others. I know cows are corn whores, but are pork and chicken fed similar amounts of corn based feed (percentage wise)? Are all industrial livestock fed pretty much the maximum amount of corn they can take?
+1
i usually steal some from a local flea market or some redneck farm off of highway 95 and then set up a stand in front of a grocery store and sell them to incoming customers.
Would you be willing to meet over coffee, and discuss? And can I bring my resume?
I hear PFGBest is holding a pretty large position on behalf of all their clients.
Oh, wait...
Et ut debitis et rem hic voluptatem. Quia qui aut et esse. Dolorem porro ipsa esse dolores omnis quibusdam a et.
Rerum provident in quod labore omnis est sapiente consequatur. Eos totam illum tempore occaecati illum veritatis accusantium. Fugiat enim consequuntur natus. Eos aut similique soluta alias eius repellendus. Sequi perspiciatis nihil voluptatum repellendus consequatur rerum itaque. Perspiciatis unde qui animi quaerat sequi praesentium vel.
Iste doloribus qui est rerum. Accusantium sapiente libero magni quis nihil sit quas aut. Cupiditate voluptatem libero recusandae nisi ut ipsam sapiente. Harum impedit sunt quod qui rerum id rem.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...