From emerging trends including the rise in US commodities, biofuel, and carbon markets, to future trends focused on tokenization and the structural impact of traceability of goods globally, experts at FIA's Expo conference plunged into the latest issues in global commodities markets.
Panelists discussed grain in particular, which experienced an extreme supply shock after Russia’s invasion of Ukraine. However, Tim Andriesen, managing director of North American agricultural sales at Marex, reminded the audience that the last time grain markets saw this sort of shock was also in Ukraine, with the Chernobyl nuclear event that also spurred a significant increase in volatility. This time the global response from the agricultural community was much swifter, he said.
"The market comes back around and says ‘okay, we’ve had a disruption here – just like COVID and the meat markets – how do we readjust? How do we change the trade flows so that the market works?’” Andriesen said.
That resilience has also been seen in global energy markets over the past two years, as oil and natural gas have faced similar disruptions, panelists noted.
“What makes crude a little bit unique is probably a 2% change in supplier demand can drastically change the price,” said Katonah EvE LLC’s president and chief investment officer Emil van Essen. This sensitivity can cause prices to fluctuate at a more rapid rate. However, the panelists agreed that while short-term price volatility is sometimes unavoidable, the global response to energy supply disruptions has been swift.
Tokenization and traceability in commodity markets
While functioning well, the panelists agreed that an emerging structural change that could boost the resilience and efficiency of commodity markets further is the idea of tokenization and more transparent commodity product traceability. President of ICE Futures US, Jennifer Ilkiw spoke on her firm's work on certification process in light of demand for more fair trade and green initiative structures in global commodity markets. This is particularly true in agricultural commodities like cocoa where deforestation by farmers can be a problem.
There are whispers of an initial certification process in development that would support this mission. It would mandate that “from the point of origin, everybody along that chain has to be able to prove that this particular cocoa was from a region that was not deforested,” Ilkiw said. Right now, that traceability and transparency is difficult to achieve – but tokenization could help make a big difference, she said.
Peter Borish, president of Computer Trading Corporation, remarked that Ilkiw’s description of tracking commodities from beginning to end lends itself nicely to the adoption of tokenization on a global scale.
“What you just mentioned could perhaps be the reason for tokenization of these commodity supplies to follow it all along.” said Borish. As someone on the trader side, Borish said that he is particularly interested in incorporating tokenization in commodity paths in the future. Panelists also agreed that consumers who are more concerned about how the foods they eat are sourced would be big supporters of this technology and its use in agricultural markets.
Future commodity trends
Looking forward, panelists predicted continued growth in the production of biofuels and, as a result, a change in the relationship between agriculture and energy markets.
Andriesen of Marex explained that we are seeing a significant increase in biofuels production and that energy companies are jumping on the trend, soybean production in particular. “There are a lot of energy companies that are becoming significant traders of agricultural products.” Andriesen continued, “This is, I think, going to be a very significant shift...I think it’s going to have a lot of impact on global price discovery when it comes to the whole soy complex.”
Borish of CTC warned that “uncertainty is a leader of volatility.” Strengthening commodity market structures is critical to creating a foundation that can withstand periods of inevitable uncertainty. On the importance of forecasting, Borish added that “the first thing about forecasting, is that if you’re going to forecast, forecast often.”
All panel experts agreed that something that will have a large structural impact on commodities trading moving forward is tokenization.
“Agricultural commodities are food. And the closer to the plate it is, the more the consumer wants to know about it,” said Andriesen. Consumers want more information on the food or goods they buy. Tokenization could become a valuable tracing and tracking tool to provide more transparency and trust in global commodity markets.
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