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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.

Hedge Accounting is supported by Agiblocks CTRM

Posted by Bart Kroon
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The importance of IFRS compliance Commodity Trade and Risk Management software (CTRM) is once more confirmed in 2018. Agiblocks CTRM software supports the agricultural and soft-commodity industries. In 2018 a large number of old and new clients choose to integrate their Agiblocks  CTRM platform to their accounting and/or ERP applications. The confidence of these companies motivates Agiboo introduce state of the art IFRS compliant integrations and to further develop IFRS related functionality. As from 2019 IFRS 9 and IFRS 15 Hedge Accounting is supported by Agiblocks CTRM.

 

IFRS (Hedge) Accounting Support in Agiblocks CTRM

 

IFRS is a set of International Financial Reporting Standards proposed and maintained by the International Accounting standards Board. IFRS-9 requires commodities companies to keep track of  their trading assets (contracts, inventories) and provides minimum standards for substantiation and record keeping for hedge accounting. In short, to be able to comply to IFRS 9, a company should maintain records of all its’ individual trading  assets from the inception until their de-recognition as a trading asset (“realisation “), and be able to record and record on the fair value changes of these trading assets over their life time.

The Agiblocks IFRS 9 functionality records the inception and valuation of commodity contracts until these trading assets are de-recogniszed (“realized”) and then represented under IFRS 15 as revenue and cost of goods sold. Effectively IFRS 9 functionality in a CTRM allows a company to either report the fair value movements their forward book as unrealised P&L or to have the fair value movements reported as Fair Value movements on the balance sheet (hedge accounting).

Under IFRS 15  a company needs to recognise revenues and cost of goods sold, and such at the transfer of economic ownership of the goods. A challenge for commodity companies is transfer of economic ownership under uncertain commercial conditions. One could imagine a transfer before all pricing have been fixed, or when the final settlement weight has not been established. Under IFRS 15 a commodities company needs to account for such uncertainties based on respectively market values and estimates. Adjustments to these estimates have to be recorded at final settlement, but also at an end of a reporting period before such a final settlement.

 

Agiblocks IFRS 9

Agiblocks offers near – real time and full permanence records for IFRS 9. During the “life-time” of a trading asset, Agiblocks keeps track of the 2 variables that together determine the fair value movements.

1. The Contract Value of each contractual and/or inventory quantity, and included all cost associated to the contract and/or inventory.

2. The Market Value of each contract or inventory quantity. This Market Value based on actual market data, differential and/or ratio curves and currency rates.

These two variables are updated near real time; whenever the status of the trading assets change and on any given moment in time a user requires an updated value, for example

1. when pricings take place
2. when quantities are split, e.g. by partial reservations or by splitting deliveries, reservations, or inventory
3. when cost items are changed (due to change of estimates, or allocation of cost invoices to contracts)
4. when the position/valuation period/reporting period of an asset is changed
5. when the system wide re-estimation is run, e.g. at month-end

Agiblocks advanced accrual accounting functionality supports the recording of these fair value changes and ensures that accumulative fair value changes is kept track of as well. When booking IFRS 9 accruals is activated on an Agiblocks installation, the fair value movements are transmitted as accrual messages to the financial accounting system. For this purpose, new IFRS-9 Fair Value posting profiles have been added to Agiblocks.

 

Agiblocks IFRS 15

Agiblocks offers near- real time and full permanence records for IFRS 15. At the transfer of economic ownership of trading asset, Agiblocks records a revenue and cost of goods sold transaction. At the same time Agiblocks reverses all Fair Value movements recorded for the trading asset and thus effectively the executed transaction creates a movement from the “unrealised” to the “realised” financial accounts.

In the case a revenue or cost of goods sold moment is based on uncertain conditions, Agiblocks records the initial revenue and cost of goods sold based on the most accurate information at execution and when final settlement information is available the initial revenues and cost of goods sold are reversed and replaced with final values. In the period between transfer of ownership and the final settlement values are updated whenever the transactions are influenced thereto, for example;

1. when pricings take place
2. when final quantities are determined
3. when cost items are changed (due to change of estimates, or allocation of cost invoices to contracts)
4. when the system wide re-estimation is run, e.g. at month-end

To ensure alignment with the financial reporting timelines, Agiblocks ensures that movements in revenues and cost of goods, after the moment of the actual transfer of ownership, are allotted to the financial reporting period they actually take place. This approach assures that the financial reporting and the trade reporting will always be synced and aligned.

 

We grow with our clients and our clients grow with us

Agiboo will further focus to support the agricultural and soft commodity industries in 2019. We aim to bring further efficiency in trading and operations of our clients, and to embed even more industry and commodity specific functionality to Agiblocks. We help our customers in achieving their challenges and enable them to capitalise on the benefits of information technology.

New specific commodity industry features in Agiblocks CTRM

Posted by Jan van den Brom
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The importance of industry focused features and functions in Commodity Trade and Risk Management software (CTRM) was once more confirmed in 2018.
Agiblocks CTRM software supports the agricultural and soft-commodity industries. In 2018 a large number of Cocoa, Coffee and Sugar traders and processors chose to use Agiblocks as the CTRM platform to support their trade and/or procurement operations. The confidence of these companies motivates Agiboo to go the next level when it comes to industry specific support in the years ahead.

 

Industry Specific Support in Agiblocks CTRM

The need for these industry specific features for industries are mostly caused by the physical nature of the commodity or the structure of the exchanges. Our experience learns that without specific industry support users are almost required to have separate administrations on the side  of their CTRM. These on the side administrations, mostly calculation and registrations in excel, are usually causing inaccurate representation of trading positions, market to market valuations and/or financial accounting mismatches.

 

Examples

There are many examples, sugar for instance,  is rather unique in the way that the commodity on one exchange (NY) traded can be converted to an other commodity on a different exchange (London). Cocoa beans are unique because they can be processed into products such as cocoa butter and cocoa powder which have their own hedge ratios. In addition cocoa is traded on different exchanges and on these listed in different currencies, creating an arbitrage position between them. On the physical side;  coffee and cocoa are sometimes being traded in bags whilst settlement is based on weight.  These are only a few examples, but it is essential that a CTRM support these peculiarities of specific commodities. Supporting those details can make the difference, they are often an important contributor to operating efficiencies, and can make the difference between a successful CTRM implementation or a failure.

 

AGIBLOCKS 2018: Further strengthening industry support

Agiblocks was already supporting a vast amount of industry specific functionality such as Arbitrage, Partial pricing, White premium, Ratio hedging, Contracting tolerance and franchise etc. The recognition of this by the existing and several new clients in 2018 allowed Agiboo to further develop CTRM features and functions which are essential to specific industries. In 2018 the feature basis was significantly strengthened, to highlight a few, we take some of the latest release:

 

Cross Currency Pricing

Previously in Agiblocks, “To-be-fixed ” or also called differential contracts, could only be priced in the same currency as the futures market to be used for price fixation. After creating a full pricing or fixation  a user could select or confirm a different settlement currency for the contract and agree and fix a conversion rate. Agiblocks would then generate a “Forex hedge requirement” that notified the user that the forex exposure could be hedged and allowed the user to allocate a forex contract to the physical contract .

We have extended this functionality  with an optional new feature called “Cross Currency Pricing”. This gives traders the option to fix a pricing in a different currency than the futures market for that pricing. A trader can use a different forex fixation for each individual futures pricing / fixation.  So if the Cross currency pricing feature is enabled on your Agiblocks system, a Trader can agree with their counter-party a pricing currency in which pricing on the contract will be effectuated and such independently of the settlement currencies.  The latter is convenient in for example the cocoa trade, but also used when you deal with trade in high inflation environments e.g. raw sugar from Brazil.  The Cross Currency Pricing functionality allows you to address the forex environment in pricing to hedge against these exposures when required and to allocate the pricing and /or hedge results to the physical contract.

 

Franchise Invoice

In some commodity trade markets, such as Cocoa trade, it is common to agree weight terms & conditions with the seller. Regardless the term, there will be weight differences upon delivery of a parcel and often it is a challenge to calculate the impact on the final settlement invoice. For example when goods are purchased based on shipped weights, then there can be a significant difference with the contracted weight and the weight of the goods that arrives at destination. Usually the buyer of the goods is somewhat protected against excess of weight losses, through the so called the franchise percentage. When it has been determined that the franchise percentage  has been exceeded, i.e. the arrived weight of the shipment is less than the shipped weight minus this franchise percentage, the buyer has the right to invoice the seller for the value of the weight by which the franchise was exceeded.

In Agiblocks, a franchise percentage can be configured for certain weight terms & conditions. This franchise percentage is then offered as default the at the contract capture.  When a record is being made of the actual arrival of the goods, Agiblocks notifies the user  whether differences in weight are inline with or in excess of the contracted conditions. When the Agiblocks configuration has the option to generate franchise invoices activated, it will not only show you the calculations for franchise for the user, it can also automatically create a franchise invoice. For companies using the financial integration, the impact of the franchise adjustment is also taken into account when accounting for the cost of goods sold !

 

Arrived quantity

Besides weight there might also be other factors determining the final settlement between buyer and seller. For example in the Cocoa trade the FCC (Federation of Cocoa Commerce) prescribes a specific calculation for the actual arrived quantity. It only considers the weight and number of bags that arrived “sound & full”.  With the aim to have the most accurate weight information processed through Agiblocks, a new, optional field\function called “Arrived Weight” has been added to Weight terms master data. The function calculates, at recording of the execution, the average weight of those sound and full bags and multiplies it with the total number of bags that was shipped to arrive at a weight to be used for settlement.

 

Weight Notes

Trading commodities in bags usually brings a lot of requirements in capturing information on these bags, not only at their initial recording at arrival, but also during the time that the bags are stored in warehouses and at their dispatch to a client. Usually this information finds it’s origin in the Weight-notes provided by warehouse keepers. The new Agiblocks Weight-notes functionality allows logistic users to record Weight-note information on a delivery (arrival) and split portions of a delivery into various inventory lots and also to merge these inventory lots later-on. A process typically used when a parcel of stock is (partially) reconditioned. While this process could be done in previous versions, changes to the execution section of a delivery form now make adding Weight note information and splitting lots much easier, but more important, the tracking and tracing of the various splits to the original contract or parcel has become more user-friendly as well.

The above are just a few highlights of new industry specific functionality in Agiblocks CTRM. Besides industry specific improvements Agiboo has spend significant efforts to make Agiblocks fully  IFRS 15 and 9 compliant allowing our customers to use the near-real time and full permanence accounting interface to be used for hedge accounting and compliance reporting. Please read the separate blog about this functionality on this website.

 

We grow with our clients and our clients grow with us

Agiboo will further focus to support the agricultural and soft commodity industries in 2019. We aim to bring further efficiency in trading and operations of our clients and to embed even more industry and commodity specific functionality to Agiblocks. We help our customers in achieving their challenges and enable them to capitalise on the benefits of information technology.

Ecuadorian family cocoa business became a touristic attraction

Posted by Markos Gkogkos
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The Ecuadorian family cocoa business

 

In 90 hectares land in Ecuador, a small family started their own cocoa business with a cocoa plantation and chocolate production. When they realized that in their land lied the ruins of a historical villa, known as the Castillo (castle in Spanish), they didn’t lose the chance to offer besides their agricultural activities, touristic oriented services.

 

“Hacienda el Castillo” (The Castle Ranch), is the name of this family business located in the Cerecita Valley, west of Guayaquil on the Ecuadorian coast. They look after the whole process of cocoa plantation and chocolate production. They also still use homemade recipes and manual procedures in chocolate making.

Today, their visitors can enjoy daily guided tours, and a route in which they will be able to get to know with the entire process of the cocoa crop, from its seed until the final product “Chocolate”.

 

"Hacienda el castillo" - The family cocoa business

The history of the land

 

Back to 1930, Ludwig Weber, a German Count arrived to Ecuador and married Maria Angelica Calero, daughter of Evangelista Calero Gaybor. Evangelista born in the little town Yasacoto in the Province of Bollvar. His popular shoe making industry helped him raise a fortune. In 1950’s the Count Weber and his wife built a villa in their land near the town of San Isidoro. This land had 1600 hectares and the villa brought the name “Castillo”. Weber had been deported from the United States to the Crystal City Camp, during the Second World War. Τhe accusations were that he was considered a Nazi spy, because he was a pilot who fought for Germany during the First World War. The beauty and tranquility of Castillo’s location made the German Count Weber to settle there with his wife and enjoy his years of retirement.

 

The Castillo was located in one of the highest hills of the area, favoring its amazing view. Its first floor was made of concrete and it had two other floors made of wood. Weber and his family spent many years of their lives in the Castillo, until his death in 1967. Immediately after, inhabitants of the surrounding area robed the Castillo.They left it in ruins. Over time, the property’s condition worsen. The Count’s family lost its ownership of the land, when Calero lost his fortune.

 

At the end of the 1980’s, new owners bought part of what today is the Hacienda El Castillo. There the ruins of the villa where found. For more than 20 years, this small family business has been based on an agricultural, tourism and industrial operation, contributing to the area’s development.

 

cocoa

 

The specialty cocoa

 

The cocoa at the “Hacienda el Castillo” is the Don Homero – Cerecita. The Don Homero refers to the variety of the cocoa used in the plantation. Cerecita means the region where the Hacienda is located. The Don Homero is of Trinitarian origin, which is why people consider it as a fine and aromatic cocoa. This variety had a development in the 1960’s, during an intense selective program held by the Ecuadorian agronomist scientist Homero Castro. For the chocolate makers, this cocoa has more mass content compared to other varieties, which makes it very attractive.

 

The last years the production of specialty cocoa is getting even more popular from small family businesses. Then commodity trading companies are also taking part in trading these types of specialty cocoa. These market trends make it clear that a new and interesting chapter opens in cocoa trading. Cocoa trading companies now they should also have flexible options regarding their specific CTRM systems for specialty cocoa.

 

 

 

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