While the trading of soft commodities used to be mainly a physical business – as most of these commodities grow traditionally in the tropics and have to be shipped for consumption elsewhere – it has become increasingly a market for financial trading and speculation. The principal soft and agricultural commodities that are traded include wheat, maize, soybeans, sugar, palm oil and rice and to a lesser extent orange juice, coffee, cocoa, cotton, and lumber.
Soft and agricultural commodities are renewable and yet there can be crisis situations impacting the supply balance. The futures market was started by traders dealing in grains almost 150 years ago. Since then, traders who were mainly farmers utilize futures as a means of locking-in prices while managing their inventories. As in any market subject to the laws of supply and demand, long term price trends influence the trading business and affect the growing global markets. Soft and agro markets are nevertheless relatively stable, as the growing world population needs staple food.
Moreover, grains are not just used for human consumption but also for feeding animals, manufacturing items, and producing bio-fuels. In fact, many of the soft and agricultural commodities such as sugar, grains, or palm oil are used to produce ethanol for bio-fuel. Ethanol production is expected to increase significantly and by 2022 biofuel production is projected to consume a great amount of world production of vegetable oils, grains, and sugar. Due to this synergy with energy and the increasing global trend towards renewable energy, many energy companies have started developing a soft and agricultural commodity trading business. Although most of the trading in these commodities is still divided between very few big companies, more and more players are entering the market.
GJP International has helped finding the right talent to successfully set up soft and agricultural trading desks.