Entries for ' agriculture'

Over the past decade, Brazil has grown to be the largest economy in Latin America and a major player in global agricultural production. As the world’s largest exporter of sugar, it produces around 20% of the world’s supply annually. In addition, Brazil is a leading exporter of chicken, coffee and soy beans. A significant portion of the world’s economy is dependent on the continued success of agricultural exports, and industry leaders are recognizing the need for advanced commodity trading and risk management (CTRM) solutions that help maintain a competitive advantage by managing volatility and optimizing supply chain efficiency.

In an effort to support the growing need for advanced CTRM solutions in the Brazilian market, Triple Point recently hosted an agriculture-focused Commodity Management lunch in São Paulo. More than 30 regional industry executives from companies including Algar Agro, ADM, BRF Brazil Foods, and Noble Group gathered at the stunning Bar Des Arts for an afternoon of presentations, networking, and fine dining.

Triple Point executives teamed up with Guilherme Nastari of DATAGRO and Eduardo Barros of Accenture to give a complete perspective of current agriculture market trends and Commodity Management best practices.  Attendees learned how gaining a transparent, integrated view of physical and financial position in real-time enables them to maximize the impact of volatility on the bottom line. The event was very successful with positive feedback from all who attended.

Visit our Web site to learn how Triple Point solutions can help manage volatility and risk in your business.

Triple Point will join CPOs from Barilla and Chesapeake Packaging on a  webinar panel on April 18th, to discuss commodity risk and potential solutions. For more details, click here.

Did you see the recent headline: Samoa Air to price tickets by   passenger weight?  All fat jokes aside, the underlying logic for the pricing change is so Samoa Air can find the best way to manage jet fuel costs.  Each pound shed from a plane saves the company 14,000 gallons of fuel each year.  At roughly $3.03 per gallon, that’s $42,400 per year that drops to the bottom line for every one pound reduction.



Analysts have been bifurcated in their opinions of Samoa Air’s new pricing scheme with some thinking it’s a brilliant idea and others that believe it can’t work.  I’ll leave it to the pundits to debate the pros and cons of the best way to price airline tickets.  But the concept of finding new ways to manage commodity risk is not at all surprising.  Managing commodity input costs is the next major challenge for many organizations.



It’s not just airlines that have the daunting task of managing commodity input costs such as fuel.  Faced with fundamental changes in the commodities and energy market environment, most manufacturers, including beverage, food, CP, chemical, and industrial, are wrestling with the best approach to protect margins from volatile and rising commodity costs.  The risk runs a wide gamut of costs including energy to run plants and distribution fleets, raw materials that are inputs to products, and packaging for finished goods (e.g. aluminum, cardboard).  Commodity costs are a major percentage, and the most volatile, of a manufacturer’s spend.



To preserve margins, manufacturers must move quickly to approach commodity procurement differently and more proactively than ever before. While not traditionally viewed as commodity trading organizations, manufacturers can learn from leading commodity trading houses and adopt new processes, tools, and measurements required to optimize raw material acquisition while ensuring compliance with new regulatory demands.



It’s shocking, but I still find many companies that manage commodity risk in spreadsheets.  Today’s complex and volatile markets require Procurement to use sophisticated software tools such as Commodity XL™ from Triple Point to not only ensure coverage, stay within budget, and deliver the material when manufacturing needs it, but also to analyze commodity risk and perform scenario analysis.  The new benchmark for procurement organizations is how well spend is managed relative to market prices and competitors, not just how well the budget is managed.



As I said, Commodity Management is the next big thing…

The US Midwest is suffering its worst drought in decades.  The US Department of Agriculture (USDA) recently dropped its corn yield forecast from 166 bushels per acre, made earlier this year, to 123 bushels per acre.  The expected shortage of corn is causing prices to surge.

Corn has multiple uses – it is used as fuel (ethanol), animal feed, or directly as food.  Roughly 40% of US corn production goes towards ethanol, 36% towards feed, and the rest towards food.

There are several concerned groups that believe the Environmental Protection Agency (EPA) should relax the ethanol requirement under the Federal Renewable Fuels Standard act, which states that there must be 13.2 billion gallons of corn starch-derived biofuel produced in 2012.  The UN has called for an immediate suspension of the US-mandated use of ethanol.  In addition, a coalition of beef, pork, and poultry producer associations have called for a cessation of the ethanol requirement.

Whether the EPA will ease the ethanol requirement is not the most important question – the real question is how do we plan to deal with rising agricultural commodity prices and volatility in the long term? The corn shortage might be a one season event, but volatile agriculture and softs prices are here for the long term. 

We have an expanding world population that is forecasted to grow from 7 billion to 10 billion in the next 35+ years.  As part of this population growth, there is a rapidly growing middle class across China, India, and other parts of Asia.  China and India alone are doubling their per capita incomes at approximately 10 times the rate and 200 times the scale achieved by Britain’s Industrial Revolution in the 1800s.   This growing middle class wants to eat higher on the protein scale (more meat which needs more animal feed).  And it appears we’ve hit a pattern of severe weather events including droughts, floods, extreme temperatures, etc.   These long term trends will drive acute commodity price swings – which is, as we’ve said before, the new normal.

All companies in the food supply chain, from upstream to downstream, should be putting plans and commodity risk management systems in place to handle price volatility.

Events

Procemin 10th International Mineral Processing Conference

October 15-18, 2013 | Chile

XXV Brazilian National Meeting of Mineral Treatment and Extractive Metallurgy (ENTMME)

October 20-24, 2013 | Brazil



Opinions expressed on this blog are those of its individual contributors, and do not necessarily reflect the views of Triple Point Technology, Inc.