Is commodity trading dying?
I've been reading a lot about how commodity hedge funds and trading desks are dying out as oil and gas have lost so much value in recent years, coupled with more regulations for commodity trading. Most recently, there was a WSJ article on Bill Perkins, a flamboyant oil and gas trader. I wanted to know what people are thinking. If you are gunning for a job at a commodities desk should you look elsewhere? Or are commodity traders simply modernizing and switching to computer based trading?
The need of hedge will always be there, so it won't die.
Though I do think US/EU commodities trading market may have a harder time if China gets more pricing power in commodities. Looking at base metal nowadays, and pay attention to potential Chinese crude oil futures...
Commodity trader is a vague term, commodity trading is a large industry. Commodity trading desks at banks are dying for different reasons than commo hedge funds. Largely, most banks are not involved in commodities anymore having sold to phys traders in many cases, largely a result of regulation and risk appetite at banks. Oil funds like Hall's are dying because of poor performance, ie bets gone sour. If u look at HF performance tables for YTD, u will see alot of commo funds getting smashed. FWIW, I've heard that it is not a great time to be on common desk at BBs (the ones that still have em), and that spirits are not high (obv). We know commodities are cyclical, and that regulation changes over time (+ or - of it), so maybe in 5 years time Blankfein will look like a genius for sticking to his guns and weathering thru a couple years of downturn in his commo division. Then again, that's only half the industry-the physical side ( I find more appealing) is a better place to be than the financial side, and rfom what I understand, the perfect training ground for a kid entering commodities.
Maybe others can add/comment on this, I am still a student lol
Currently in physical commodities trading. From an ag perspective it doesn't appear as though technology will be replacing merchants anytime soon. I think what's critical here is the demographic that you are working with. While this is a generalization, farmers tend to be fairly old fashion. It is my guess that they would much rather prefer dealing with a human rather than a computer no matter how much more efficient or advanced the technology may be. But due to increased regulation and a lack of volatility, it is understandable as to why BB's would phase out commodities. As stated above though, commodities are cyclical and this sentiment is merely a reflection of the industry today, not in the future.
Also working in Ags & Softs, worked at two of the largest shops in recent years. Physical trading at the moment is a tough environment for traders at the moment due to the lack of volatility on most products == opportunity. That being said, it's busy across commodities on the physical side, and the purpose served isn't about to be replaced.
I wouldn't want to work in a bank on commods one bit, but physical at trading houses is very much alive and well. Only other sub-sector within commods that is interesting is the algorithmic trading side of things (long term, only area I'd consider a move too and even then not for a few years) who really are incredibly active across the space.
On a side note - FWIW I think the physical commodities industry is probably one of the number one sectors in the world with opportunity for technological advancement - but more for processes rather than the actual traders themselves.
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