Merchant Firms And Overalll Goals For Them
Is the goal for a small or medium merchant firm to go upstream? If so, why don't all small to medium firms have upstream assets?
I understand the hurdle for energies and metals might be capital and regulations, but what about ag? I am not sure how easy it is to acquire farmland, but it can't be as difficult as buying a mine or well? Or am I mistaken?
Thanks!
In ag they generally want to go downstream. Farming carries a lot of risk and not a lot of upside. The exception is sugar. I don’t work in sugar but it seems like most firms that trade sugar are pretty close to vertically integrated. They farm, process, trade, and often retail. Not sure why that is though.
If I understand correctly for ags, there are few 'pure traders' anymore regardless of the size of the company. You go wherever there is money to be made in the supply chain (processing, transportation/logistics, branded products, but not farming as it's a "terrible" business--even if you might provide financing/other services for farmers), with your trading business essential (as a sort of foundation for your other businesses/as a benefit to your customers) but not necessarily by itself profitable.
Would love to hear from those on the energy/metals side about why all companies don't (strive to) go the Glencore route. I read a recent article about Traf not wanting to be 'one of those' trading houses, even though they are investing heavily on the debt side in E&P.
Glencore almost went bankrupt when China slowed down in 15/16. When you own upstream assets you get levered to the cycle. Look at energy Right now, would you rather be asset light like vitol and crushing it, or Exxon
Makes sense: so why did Glencore go that way? Also, theoretically if you have upstream assets in all commodities, wouldn't that help diversify risk?
Also, read on Twitter that Vitol didn't do too well when oil went negative. Not disputing you as I'm just an incoming without inside info, but is this based on firsthand knowledge or just an educated guess? I know a couple of heads of the large firms have been doing interviews but they obviously haven't revealed much about their actual operations.
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