PRAs in the agriculture market Flashcards
what was the first commodities humans traded?
agricultural products
what were empires built on?
sophisticated ags supply chains
what was Iran doing in 4,000BC?
using agricultural derivatives: clay tablets representing sheep or goats that could be exchanged without difficulties of physically moving the animals
what did Socrates say about wheat?
“No one is qualified to become a statesman who is entirely ignorant of the problem of wheat”
When was modern risk management theory developed?
in the american midwest in the 19th century by farmers, trading firms and customers who wanted to reduce volatility in the price of crops and livestock
What are the three broad classes of commodities?
Energy , metals and agriculture: ags is the oldest
why have PRAs failed to embrace ags?
1) the long history of exchange based pricing in the ags market has led to benchmarks established by futures prices rather than by PRAs
2) it’s difficult to assess prices in markets that are frequently subject to state subsidy or political intervention
why will full price liberalization never be on the agenda for ags, as it is for energy?
agricultural markets have huge political significance, and there’s an overriding need to ensure food security esp in the developing world
who are the largest firms in agriculture?
ABCD - Archer Danial Midland, Bunge, Cargill, Dreyfus – giant producers, traders and processors who control a greater share of the international traded markets than is the case in the energy and metals industry
what barrier does the international monopoly ABCD make?
their vertical integration acts as a barrier to greater price discovery and, as powerful incumbents, they aren’t incentivized to promote greater price transparency in their markets
What other factor has tended to favour the energy PRAs rather than ags PRAs?
ag producers and traders ship huge amounts of material around the world, but the products are less valuable per/t than energy.
profits from ags are lower than energy and therefore the ags sector is unwilling to pay for the same subscription rates as energy firms would
why is it difficult to establish a target audience for PRA subscriptions
there is a fragmentation of primary ags production bases: production is fragmented across thousands of small entities (even though the largest ags traders are huge compared to energy peers)
PRAs are used to dealing with large oil producers etc.
the use of PRA indexation is the…
exception and not the rule in ags.
how do ag products trade?
products trade on fixed price outright basis or in relation to benchmarks derived from the dominant contracts listed on ags futures exchanges.
How are energy and agriculture interconnected?
development of new markets for bioenergy - ethanol , biodiesel and biomass - effect both energy and agrcultural producers
