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
What was the first PRA?
Public Ledger founded in 1760 by John Newberry - he is the fathers of children books, publishing the first children books in rhyme
Where are many of the core pricing benchmarks derived from?
the futures prices listed o the CBOT, which is part of the CME group, or on the new York Board of Trade, now part of ICE.
Why is chicago the natural choice for a major agricultural centre?
its so close to lake michigan and the mississippi river andis in the most agricultural and
When was the CBOT opened and what did it do?
1848, introduced standardized futures contract as early as 1865
what did the development of agricultural futures do?
incentivized investors to build up stocks of grain that could be consumed all year, ending seasonal imbalances in S&D and reducing price volatility
What does the CME group dominate?
the CME group dominates US futures trade in grains, oilseeds, livestock ,rice : the settlement prices a used as reference prices in trades around the world
What does NYBOT dominate? new york board of trade
global trade in soft commodities is dominated by the futures contracts listed on NYBOT
Why is the US more transparent than other international ag markets?
1) sig volums of fundamental and pricing data is supplied y US Dep of AGs,
2) US futures contracts control world ags, esp the US ags exports
Where is pricing found of soft commodiites? (coffee, sugar etc)
pricing of soft commodities is dominated globally by futures contracts listed by ICE
What significant event happened in 2016 with an australian wheat swap?
thef irst australian wheat swap on a platts basis was traded between global agricultural powerhouses louis dreyfus and cargil: deals for australian wheat had always before been traded on a fixed price basis, or priced against CBOT wheat futures.
What is the most competitive area for PRAs in ags?
bioenergy: it lies on the fault line between ags and energy markets, because energy firms are more used to “arm length trading” and using PRAS than ABCD incumbents are.
what sectors comprise bioenergy?
biomass, biodiesel and ethanol
Why is bioenergy more important?
politicians are looking to diversify energy sources away from fossil fuel for the environment and for security of supply, while offering market opportunities to domestic farmers
Who sets benchmarks in what?
Argus sets benchmarks in european biodiesel, And platts supplies leading benchmarks for ethanol in europe and the uS
Who fucked up ethanol?
Platt’s european ethanol assesments got bad publicitity
what’s good about argus’ treatment of European biodiesel?
Argus Open Markets (AOM) bulletin board. it allows registered participants to post bids, offers and initiate commodity deals in real time on spot market. not a real trading platform as deals are ultimate done offline
whats a down side of a screen offering?
it disintermediates over the counter brokers
