Why banks don't provide financing for agri- physical trading?

BananaTrader's picture
Rank: Monkey | 47

Hello everyone,

Every bank that is financing commodity businesses (abn, ing, bnpp, rabo, macquire, anz, Soc Gen, natixis and other) is active in the energy sector. Some operate only in the energy sector claiming that metals and especially agri businesses are on a much lower scale, thus deals are quite small and financing required is also insignificant (this is impression I got speaking to a couple of bankers in this area).

At the same time, ADM, Bunge, Cargill and LDC operate only in agri (except Cargill also trades energy and LDC is active in metals) are the largest existing today physical traders. If the deals in agri were small then I would expect seeing oil traders as the largest ones, while agri traders to be relatively small and maybe even seeing no agri-only shops.

My two theories are the following:
1. Margin in agri markets are lower than in energy thus agri traders tend to integrate vertically into the businesses
2. (comes from the first theory) significant part of operations and assets in agri markets is held by ABCD who just have enough capital to finance themselves without pre-payment/offtake agreements with smaller producers.

I will appreciate feedback from practicing physical traders.