Is it still a good time to get into physical commodities trading?

chickensoup15's picture
Rank: Baboon | 173

Hi everyone,

As someone who is fascinated by physical commodities trading, I was wondering if it is still a good time to get into the industry. I know that to break in takes many years of preliminary work that would seem like a waste of time of the industry is changing for the worse. I've read that Goldman has cut many heads from its commodities desk and glencore just halted production at one of its biggest mines. Would be really interested in learning more from people in the industry or people that know a lot about the industry.

Thanks for your help in advance.

Comments (11)

Aug 7, 2019

chickensoup15, hey, look at the bright side, at least you didn't get a ton of monkey shit thrown at is my best guess on threads that might be helpful:

  • Physical Trading (Part 1): What it is and What it isn't first part though, I just want to clear up some of what physical commodity trading is and isn't: ... What it isn't: 1. Physical commodities is not a rocketship to being a billionaire. This will seem ... going to take being the right person, at the right time and the
  • The 24 Interview Lessons I Learned on the Way to Getting My First Full Time Job moderate timing, phrasing and structure. Testing yourself is the best way to learn this by covering up the ... all the hard way. Here goes... 1. Interviewing is like dating You have to play hard to get, but not ... last points, which I believe to be the most crucial. It is no
  • Weighing up physical commodity trading (agricultural) and a FICC rotation program job that I have been offered is at a boutique physical trader that trades agricultural products. It ... it's still trading ags). When weighing up the two jobs, I really don't like the idea of ending up ... logistics/operations at boutique physical ag trader vs MM FICC rotation? How hard is i
  • Off The Beaten Path: Commercial Banking to Private Equity (The Non-Traditional Route) it's next to impossible your resume will get picked up with a non-traditional background. Pretty much ... HAVE TO NETWORK!!! It's hard enough picking a resume out of a pile of good applicants, but ... the only way to get your 'out-of-the-box' resume in the shortlist
  • Still haven't decided what to do this summer! Help me choose!? I've ruled out the hf opportunity. Everyone tells me I should get into trading because I'm good at ... calculating things quickly, but if I take the trading internship at Group One would I still be able to get ... a full-time job at a hf upon graduating. The problem is that I do not think I can afford to
  • Breaking into buy-side equity research- my experience research." I came in knowing that sell-side research is likely the best way to break into buy-side research, ... extremely hard to get in and very good reputation. They do make pre-MBA experienced hires but it is ... -side guy finds useful, it is expected trades will be d
  • Physical Commodity Trading physical trading of commodities is done between different counterparties and there is a time delay between ... physical traders? physical commodities trading overview Physical commodities trading is a business that ... trading commodi
  • 8 Reasons To Choose A Startup Over A Corporate Job it's also really easy to see when you've screwed up. For two reasons, this is a good thing. The ... following article, which explains why it is good to work at a startup might be a good read for some of you. ... You're leaning toward that corporate job and good pay with nice benefits. The smart
  • More suggestions...

You're welcome.

Aug 19, 2019

Based on my experience in the industry so far, keeping in mind that I am freshly minted out of undergrad with less than 3 months experience. I would say that the physical industry is alive and well. While this might not mean a lot coming from a trader with less than a years experience I can tell you that the comp at my company and in the industry is quite competitive. We do well comp wise, but just keep in mind that its not a hedge fund. I work at a small Lumber trading shop with 35 traders and the senior traders who have been in the game for 20+ years are pulling 1.5M yr gross margins which translates to about 550k in out the door compensation after taxes.

    • 2
Aug 21, 2019

Depends on what you want to do in the commodity space and what asset you are looking at. Physical is alive and well. Financial is mostly algo trading, depending on asset.

I'm personally bullish careers built in power, gas, chemicals, crude oil, distillates, base metals, oilseeds, proteins. I'm bearish careers in feed grains, coal, and bunker fuel.

So choose wisely because its hard to change assets once you begin a career.

    • 2
Aug 21, 2019

What do you see in the feed grains trading industry that makes you feel bearish about it?

Aug 22, 2019

Ethanol demand drying up is a huge hit. Despite the flooding in the Midwest this year USDA is still forecasting a strong corn crop. You're seeing some near term volatility but as far as building a 40 year career, I'm not sure feedgrains are the place to be. Changing consumer tastes and preferences in the first world are serious structural issues that the market is still coming to terms with. Ask a wheat trader how gluten free diets have affected that market

Learn More

Boost your resume and land a finance job by passing the FINRA SIE. 264 pages & 1981 smart flashcards written by a former 8X top Fidelity instructor. Try it for 0 bananas here.

Aug 22, 2019

Any thoughts on the lumber industry? Just started a job and I don't want to get pigenholed

Aug 23, 2019

I will be honest, I don't know much about the lumber industry other than lumber futures are a good leading indicator for overall economic growth. I also know that Robert Kraft made his fortune in the industry. Koch Industries has also done really well with buying Georgia Pacific and they trade lumber and paper products. I heard the GP paper pulp desk made a killing last year but I don't know specifics.

If there is good volatility and arbitrage opportunities maybe make a go of it. But if you really want out your best bet would be to get on with an diversified player like Koch/GP, prove yourself in that asset class, then internally network for a transfer. You can switch commodities but it will be hard. If you do, network your butt off, learn everything you can about hedging/trading strategies, accounting, P&L management, logistics, etc. And I would try and target another soft commodity like grains because it's the next closest thing.

    • 2
Most Helpful
Aug 23, 2019

AlphabetTrader - thanks for replying to this.

Sangisinacoma - this is the best response you're going to get from your recent spamming of these boards. You are not going to get a job at Traf based on the fact you've been in a role for less than a month and have no valuable experience or skills. I kindly ask that you stop blowing up every commodity thread on this board asking if lumber trading has good prospects. Right now, it looks like it is the best prospect you have and you're already in a commercial role (which will take years and years for you to get to in more liquid, "sexier" products) so it really is what you make of it.

I've started writing replies to a few of your threads but have gotten irritated and deleted them. If you can succeed in energy then you can succeed in lumber. Looking at generationally talented traders' incomes is a poor metric for choosing a market.

Choose a product that you're actually interested in and look forward to waking up and attacking. Odds of getting enough VaR to actually make real money outside of your assets (which are gifts) are quite low and odds of doing this consistently and/or meteorically are even lower. If you find a product you like doing you'll greatly improve your odds and will hopefully be at least average. Average traders (particularly in niche markets which you sound like you think you are too good for) can make a lot of money over the course of a career and you'll be doing something you find interesting every day.

You have this notion of getting pigeonholed which seems like a second-hand worry borrowed from reading too many financial industry musings on WSO. Good traders should get pigeon-holed. If you can make $20mm/year trading road salt in the former Soviet Union you are going to think the guy churning through capital to trade a million wet barrels a day in an effort to get an edge on board spreads for the same PnL is a risk crazed idiot.

Embrace the opportunity you have, understand your risks, and be creative.

    • 11
Aug 22, 2019

Any thoughts on lumber? Just started a job and I don't want to get pigeonholed

    • 3
Sep 1, 2019

To the OP, commodities are cyclical but people have been trading them for thousands of years, and will continue to do so unless we cook ourselves in the next 50.

Access to information really changed the game however and traders fought for their margins by either scaling up and adding on assets, staying focused on obscure niches, or in the case of banks, using their balance sheets. The bank model is not sustainable in the long run and that's why you see guys like Goldman dial it way back. There is a place for them on the paper side for sure but their physical involvement is doomed to be limited.

As far as production being halted at a mine, don't really see how that affects the outlook of the industry.

    • 2
Sep 26, 2019