Home » Blog

Blog

To be able to make Agiblocks the best solution it can possibly be, our developers and business specialists draw on their extensive knowledge about Commodity Trade Risk Management in general as well as about the business practices associated with particular commodities. On our blog page they share their knowledge with Agiblocks users and with the CTRM community at large. Updates on the Agiblocks solution will be announced and explained here.

Chocolate, a favorite to many of us

Posted by Jan van den Brom

Chocolate and cocoa beans

 

During vacation I watched a few documentaries. One documentary was about unknown foods and the other about cocoa farmers in Ivory Coast. As we specialize in cocoa trade at Agiboo with the Agiblocks Commodity Trade and Risk Management (CTRM) solution. These are the type of TV-shows which always have my interest. In the first documentary they went on the street in a city in Holland and asked the audience if they could recognize a certain fruit. The fruit was a cocoa pod, this fruit actually holds the cocoa beans while it grows on trees. To my surprise very few of the interviewed audience knew what it actually was. In the second documentary farmers were given a bar of chocolate. These farmers worked on a cocoa farm all their live but never had the chance to eat real chocolate.

 

The chocolate farmers had a great time and enjoyed the sweet taste of chocolate. It was a pleasure to watch because one farmer was even able to take a piece home. It nevertheless showed how disconnected the cocoa farmers and the consumers of chocolate actually are. That is unfortunate, because the history of chocolate is very interesting.

 

A chocolate history

Until the 16th century cocoa was only known in the America’s, most prominent in current Mexico. Many civilizations and cultures cultivated in some way cocoa plants. The Mayas and the Aztecs for example did harvest the cocoa beans. Let it ferment and brew with other spices a drink from it. In the 16th century Spanish explorers took some cocoa beans to Europe. There the drink was although sweetened with sugar consumed by people who could afford it. These chocolate drinks were not as we know it today, much more granular and not so smooth… Sometimes I wonder how exciting these times were, the thrill of just finding a new species could start a whole new industry such as coffee and cocoa.

 

It would take until 1828 when Coenraed Johannes van Houten invented the cocoa pressing with alkali. This process allows separating cocoa beans in cocoa butter and cocoa powder, the last one very important to create a smooth chocolate drink. Not only drinks, but the separated cocoa butter could be used to smooth the cocoa mass. Cocoa mass is the result of grinding cocoa beans. Suddenly flavor rich cocoa drinks and chocolate bars came to the next level. The original Van Houten factory is close to our office in The Netherlands and you can still visit it on invitation.

 

Conching

Multiple inventions to improve the quality of chocolate worldwide were done during the 1900’s, but there is one which deserves to be highlighted. In 1879 Rodolphe Lindt invented the conching machine. The romantic story goes that he left his mixer on by accident in the night and found out in the morning what happened. If that is true I do not know. However conching is the intense process of mixing and stirring for many hours, which makes the chocolate smooth and removes the bitterness. Bringing it to the level of chocolate taste and experience we know today.

 

The magic of chocolate attracts many, also us here at Agiboo. Their might be multiple reasons for it. For me it might be the movie of Charlie and the Chocolate Factory which I watched as a child. I found Mr. Willy Wonka a true hero. The chocolate industry has now become more efficient and professional than ever. Not many chocolate factories remain worldwide because of consolidation. This is also valid to a certain extent for the cocoa trade with cocoa bean futures markets in London and New York. Maybe it is somehow a comfortable thought that cocoa sourcing is bound to tropical areas such as in West Africa and cocoa farming is not really industrialized such as with palm oil.

 

Cocoa trade operations

The cocoa bean remains a magnificent commodity, with that hint of mystery due to its long history and exotic flavor. For trading the cocoa bean is prone to much specific administration and business processes. Not many commodities can be split into two complete new products with their own hedge ratios. Very few commodities have two derivative markets with different currencies and cocoa beans can attract or loose weight because of moisture adding challenges to the logistic process. For this reason we believe that passion for cocoa and chocolate is needed to build and provide an administrative software solution to this industry. Hopefully the consumer and the farmer will get more connected in the future, with even more appreciation for this wonderful product.

 

Evolution of commodity trade regulations

Posted by Jan van den Brom

Commodity trade regulations have a long history.

 

Nowadays I take the existing trade mechanisms in commodities for granted. Rules and regulations on the exchange are just there and the market embraces them or works alongside them. My job and interest is mostly to facilitate the administration of the consequences. Enabling our clients to leverage these regulations and trading mechanisms in our Agiblocks Commodity Trade Risk Management (CTRM) Software.Many do not realize that all these rules and regulations are the result of multiple centuries of evolution, experiences and disappointments which shaped the situation of where we are now.

 

An interesting read on this is the history of the CFTC, the US Commodity Futures Trading Commission. In this article they provide an impressive detailed overview of all changes and foundations in commodity trade since 1848. It is an interesting read because of the detail you gain in understanding what a commodity makes a commodity. In the background of a product being homogeneous and as well being listed on a commodity exchange. Where adding wool tops to that list in 1938 is definitely one of my favorites. It also shows the challenges of protecting the integrity of a commodity market. Each new regulation or rule was obviously a reaction to some event.

A worldwide initiative

When reading this, you realize that it describes the history of commodity trade in the United States. Where in Europe and Asia similar history was made. Sometimes following the United States but also setting the trend. Most people from the industry see the establishment of the Osaka Rice Exchange in 1697 as the start of the modern era of commodity trade. The Dojima Rice Exchange was the first commodity futures exchange and founded by Samurai to be able to control the rice market. Around that time and in the 18th and 19th century many initiatives were worldwide undertaken to control and regulate markets. Initiatives to enable trade were already there much earlier. Like the Royal Exchange in London in 1571 during the reign of Queen Elizabeth I and the opening of the Exchange of Hendrick de Keyser in 1611 in Amsterdam. Trading derivatives started there in 1668.

 

Technology possibilities always had a huge impact on regulations. Information at that time was not as available as it was now. We are used now to check the prices on our smartphone and have instant information. In these days having first access to an arriving ship could make a big difference between profit and loss. I can imagine that just a little more information about supply and demand at the Jerusalem Coffee House, off Cornhill which can be seen as the predecessor of the London Metal Exchange (LME) and it would create some opportunity there.

 

Timely information is important

Even in the mid-20th century this was important. I remember to have read in a history commodity trade book the story about a trader at the CBOT. The trader ordered the firefighting department during a long period of drought to wash the windows of the Chicago Board of Trade (CBOT) building. By the time the other traders figured out it wasn’t raining, the price of wheat had gone up significantly. Allowing some good profit for the man who called the fire fighters. Unfortunately I have never been able to find the story online. If you have a reference to it, please leave a comment.

 

What triggered this evolution of regulation and rules in commodity trade? Obviously the organization of people who wanted to trade and avoid risk. This occurred mostly in the 16th and 17th century and the logical evolution of regulation and rules came in the centuries thereafter. Nevertheless it was not only the organization itself because the world became aware of certain events. As a result proving the necessity of regulation. These events impacted personal lives and economies and are of all times.

 

Multiple examples how regulation responds

Recently the mortgage crisis is a good example. In commodities the tin crisis in 1985 is still in many peoples mind. Black Swans and crisis were there and will occur also in the future, but in the 17th century it was the first time they occurred by human action in trade. Prior to the 17th century crisis occurred mostly because of weather or war. In the 17th century this changed with I guess the most prominent example: ‘Tulip Mania’.

 

The first major event created awareness

By the end of the 16th century Dutch traders took the first tulips back to Amsterdam from Turkey. Sultan Suleyman the magnificent provided some bulbs to Ogier Gisleen van Busbeke. Who was the Ambassador of Vienna in Istanbul. Who then gave some to Carolus Clusius who became professor at the University of Leiden in 1593. At that time The Netherlands was in a rising economy because of worldwide trade relations and establishments. Especially the trade in spices was very lucrative and as there was money to spend. A rare product as the Tulip was wanted and appreciated. The tulip is a bulb flower; it is a product which can practical be traded. You simply trade the bulb after all before it becomes a flower.

 

Regulations will keep respond to the markets

In the stream of events something happened which is unpredictable. A virus affected the tulip. The virus did not destroy the flower but made it even more beautiful and rare. Causing beautiful flames to appear on it. All the ingredients were there to form the first trade bubble. A booming economy and a rare product in demand. Some merchants started to speculate on a higher prices. They sold their real estate for example to make a profit. The tulip mania started in 1634 and ended in February 1637. Hence Leaving many devastated and bankrupt behind. The world would never be the same. Slowly the awareness grew for the need of rules and regulation in commodity trade which would settle in the next centuries.

 

While I write this I am actually in Istanbul and I look at the mosque of Suleyman the Magnificent and I realize the possible impact of giving a flower. I wonder about how things in history can be connected. The next bubble might already be in progress. Caused by now considered minor events. The only thing we know for sure is that the regulating authorities will act on it with new regulations, after it occurred of course…

 
 

The invention with the most impact in commodity logistics.

Posted by Jan van den Brom

Recently I had a conversation with an owner of a commodity logistics company; this commodity logistics company was a so called third party logistics provider which means that they specialize in warehousing and mostly the transport for the client. In the commodity industry is that many times a commodity trader. The conversation was more of an historical one as we were discussing and debating which logistics invention had the most impact for all of us. When I was with my thoughts by the opening of the Suez Canal in 1869 or the opening of the Panama Canal in 1914, this man was really outspoken. The ocean shipping container, he said!
 
Until the mid 50’s of the last century, standardization was unknown in shipping commodities on ocean carriers. Each shipping company had pretty much its own method, causing a real inefficient way of handling the cargo when loaded and unloaded. Many had tried to standardize before. Containerization has actually its origins in early coal mining regions in England beginning in the late 18th century. In 1917 Benjamin Franklin experimented even with containers in Ohio. Nevertheless it was Malcom McLean who really invented the standard steel container in 1955. Probably the biggest success factor was the let go his patents, allowing a worldwide adaption of the intermodal container.
 
International commodity logistics went from that time in a complete new era, allowing an efficient transport method where before only bulk and break bulk methods were possible. For the commodity industry these methods remain intact as certain commodities do require bulk transport or bulk is simply more an efficient way of shipment.
 
The commodity industry nowadays has a variety of choices between intermodal containers, break bulk options and bulk. This also means that a commodity trade administration or a commodity software solution must support these various options in all its possibilities. At Agiboo we have developed features to support these specific registration needs in Agiblocks Commodity Trade and Risk Management (CTRM) whether it is about the registration of container numbers or tolerance calculations when loading bulk.
 
 

( function ( body ) { 'use strict'; body.className = body.className.replace( /\btribe-no-js\b/, 'tribe-js' ); } )( document.body );