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AGIBOO participates in software development partner Xplicity

Posted by Jan van den Brom
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AGIBOO participates in software development partner Xplicity
 
Kaunas, Almere – March 1, 2019
 
For immediate release
 
AGIBOO, the provider of AGIBLOCKS Commodity Trade and Risk Management (CTRM), today announced that it has confirmed the strategic partnership with Xplicity, a leading Lithuanian software development company, by acquiring a 50 % ownership.
 
“AGIBOO’s unique value is the combination of state-of-the-art technology with agricultural trade and supply chain domain knowledge. We experience significant growth and appreciation for our CTRM solution and services.” said Bart Kroon, CEO of AGIBOO. “The AGIBLOCKS CTRM software is a strategic asset for our customers which enables their growth and profitability. We aim to enhance the functionality and quality of our product continuously supporting our clients in their pace to digitalize their trade management, risk management and supply chain”. Our enthusiasm to work with Xplicity is driven by their ability to provide the right development qualifications, domain knowledge and experience.
 
“Xplicity has proven to be a reliable software development partner for many clients. We have a co-creation attitude and our employees and client retention history confirms that we create valuable co-development relationships” said Gerhard van der Zwan, co-founder of Xplicity. “It is our aim to further leverage on the domain knowledge we have gained over the last 14 years to the benefit of both our clients and our employees. We believe the Agri business domain is on the forefront of a digitalization revolution and Xplicity can contribute and bring long term value to multiple clients in different parts of the trade and supply chains. We are excited to team up with AGIBOO to leverage the vision, experience and relationships to strengthen our knowledge base and to accelerate our growth.
 
About Xplicity:
Xplicity, headquartered in Kaunas Lithuania, is a Dutch-Lithuanian Software Development Company. For more than 14 years we help numerous small to medium-sized companies around the world to bring their visions to life. Our proposition is to leverage the combination of technology and business domain knowledge. We engage with our clients throughout the full development and/or product lifecycle. The software development expertise and capacity we deliver is committed to our client’s long-term success. Xplicity gained significant domain expertise in amongst others Virtual Desktop Management, Logistics, Trade Technologies & Agri Supply Chain.
 
About Agiboo:
AGIBOO, headquartered in Almere the Netherlands, provides commodity trade / purchase and risk management solutions for the soft- and agricultural commodity market. AGIBLOCKS, the CTRM software provided by AGIBOO enables business to successfully manage commodity trade and risk management. It is a truly revolutionary CTRM solution for commodity purchasers, brokers, traders and commodity industries. The unique value proposition of AGIBLOCKS is the functional diversification (modularity, configurability), the scalability, the flexible integration possibilities (with third party accounting, ERP and/or trade systems), the user friendliness and the versatility in availability (regular and mobile platforms).
 
 

 

Current markets are volatile.. do you know your WYCNATHH ?

Posted by Bart Kroon
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How we read current soft commodities markets?


Apparently markets have reached structurally lower grounds and became more volatile last few years. The origin of these lower prices cannot just be explained by supply and demand, since these trends are across the commodity complex. Cocoa, Sugar, and Coffee all trade far from their peaks and even their 5 – 10 year averages. I believe that such is driven by multiple factors. First an abundance of supply over limited demand growth. Second, despite an excess of financial liquidity, there seems to be less interest to invest and speculate in commodities by financial players. Third I consider that current prices reflect the structural lower crop input cost (and interest rates) and the increased supply chain efficiency.

Demand growth might be impacted by demographics;  stagnating markets in North America and EU, whilst Asian consumption is growing but from a lower base level. On the economical side, for the growing economies in North America en EU, it could be that consumer money starts to flow back in more durable consumer goods. There might be less need to indulge oneself in the (cheaper and easy to spend) fast moving goods area. Additionally matured markets are negatively impacted by a “health trend” and an increasing a choice for quality and value over quantity and price.

 

Impact for soft commodities on the shorter/longer term

 

On the short term most impact will be felt in the producing countries. The best example is in Cocoa; the recently announced 700 CFA farmer price in Ivory Coast. This price level will not incentive famers to invest, on the contrary it probably will further strengthen the outflow to financially better yielding commodities such as palm oil.

We have seen similar trends in Asia, where the Cocoa crop, despite rising local grinding demand, is shrinking in favour of others. Who could have thought that Indonesia would be a significant net importer of Cocoa 5 years ago! The latter is not only the result of price levels, it is also the result of a government stimulating cocoa processing capacity whilst at the same time stimulating a crop conversion to rice and corn. I believe that when Cocoa prices in NY would have been structurally at USD 3.000 – USD 3.500 the outflow from Cocoa would have been significantly less in Asia.

 

On the longer term one could argue that, the best recipe for low prices is low prices. Low prices will shakeout underperforming farmers and eliminate “waste” in the supply chain. The best performing farmers are motivated to acquire land or land-rights and increase their farm size, and such will then lead to a better long term performance of the supply chain. Some stimulation from governments in crop infrastructure (access to knowledge and input, absorbing volatility) and/or investment support (access to finance) would help. SME’s should be stimulated to rationalise the supply chain en to distribute knowledge/inputs/and finance. Then in the end low prices could be a driver to achieve a better economic structure of an industry. We have seen this happen to various commodities over time (Dairy /Sugar/Meat in EU, Sugar/Soy in South America). On Cocoa and Coffee however there still a lot to gain!

 

 

What does this mean for soft commodity traders / companies?

 

The downturn in prices, and the sometimes even steep declines in short time periods, made its casualties. It is a volatile and disruptive environment! Several trading companies faced unexpected losses, whilst requiring extended funding to cover hedges. This is happening in an environment where banks are forced to reduce leverage. Usually lower prices lead to lower margins in the chain and thus execution risk for traders increases. Mostly processors and manufacturers benefit from low prices, hardly the consumers. In a small market as the cocoa market one party defaulting might create a chain of defaults throughout the industry. This was actually what the volatile cocoa market experienced the last 12 months. A disruptive environment is a trigger for both; consolidation amongst more mature players in an industry, and new players (smaller, more innovative) in an industry. We have seen such happening in coffee, cocoa, and I expect it to happen in sugar as well.

 

How can commodity traders arm themselves against these risks imposed by these lower and volatile markets?

 

When it comes to market volatility the most important thing is that you know your WYCNATHH – What You Can Not Afford To Have Happened! When you know the limits of your company then you can set your controls and measures to around that. It allows you also to anticipate on managing disruptive or less favourable scenarios. Continuous measurement of exposure to markets, to counterparty defaults and to forex movements is key, particularly in derivative dominated markets you need such on a real time basis. Mostly the obvious risk metrics will be sufficient when applied consistently and frequently and we observe that finance providers and shareholders increasingly ask for Value at Risk type of monitoring. Value at Risk (VaR) is a mathematical and statistical model that based on historical and / or random simulations, predicts the likelihood of future value of a trading or risk portfolio.

A VaR is basically allowing a company to evaluate its potential risk exposure in monetary terms to their WYCNATHH! As a software vendor for commodity trading and risk management software we anticipated this trend and are able to provide Value at Risk tools to the market. We can integrate our VaR tool to different systems, and for these companies that use our software platform AGIBLOCKS it does not even require an integration, it just a matter of adding a VaR license.

 

 

How to deal with market risk when you are a commodity producer

Posted by Svetlana Tokunova
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As a commodity producer your main focus might be production risk, but market risk can minimize your profit where you worked so hard for. When the product is traded on an exchange you can benefit by hedging the commodities. Often producers find this a difficult subject which in fact is rather simple.

When you have the possibility to hedge on an exchange you can consider market risk as just the price fluctuation, but actually market risk existing out of two parts. Price and so called basis. Basis is the relationship between a local cash market price and the futures price (Cash Price – Futures Price = Basis)

A good possible way to protect yourself is the short future hedge. It is the most basic risk management strategy for producers. A short position in futures is initiated as a temporary substitute for the eventual sale of the commodity to a counterparty. The short futures position can be placed well in advance and will provide price protection until the cash commodity is sold. Immediately upon the sale of the cash commodity, the short futures position should be closed out (offset). Since prices in the cash market and futures market generally move up and down together over time, a loss in either of these markets will be offset by a gain in the other – thus allowing the producer to lock in a price level in advance of the cash sale.

The advantages/ disadvantages of such a short future hedge are:

Advantages

• Eliminates risk of lower price levels
• Establishes a selling price level in advance of cash commodity sale
• Strengthening basis improves selling price
• Futures position guaranteed by the exchange

Disadvantages

• Weakening basis lowers selling price
• No benefit from higher price levels

A different way of protection is offered by the long put option hedge

The long put option position gives the producer the right (but not the obligation) to sell futures at a specific price level (strike price). If prices fall below this level, the producer (buyer of the put option) has the right to sell the underlying futures at the strike price level. Should prices rally above the strike price level, the producer is not obligated to the put option strike price, and therefore, can sell their commodity production at the higher market price. The long put position eliminates downside price level risk while allowing the producer to sell at a better price level if the markets move higher. In addition to the price level, the basis level will affect the actual selling price at the time of the cash sale, just as it did with the short futures hedge. A stronger basis at the time of the cash sale improves the selling price while a weaker basis will lower the actual selling price.

The advantages/ disadvantages of the long put option hedge are:

Advantages

• Eliminates risk of lower price level
• Establishes a minimum (floor) selling price level
• Benefits from a higher price level
• Strengthening basis improves selling price
• No margin requirements (put option buyers do not post margin)
• Option position guaranteed by the exchange (put option seller posts margin)

Disadvantages

• Weakening basis lowers selling price
• Premium is paid in full at time of put option purchase
• Transaction costs

Both mechanisms gives you the tools for protection, it must be said that there are more. However being able to play with both provides the assurance and stability you require to deal with market risk and when played right… secure additional profit.

 

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