I N D U S TRY INSIGH TS S O F T & A G R I C U LT U R A L C O M M O D I T I E S : 2 0 1 2 M A R K E T OV ERV I EW & 2013 FO R EC AS T S
S O F T & A G R I C U LT U R A L C O M M O D I T I E S 2012 MARKET REVIEW The soft commodities market has seen a mixed year in 2012, with some of the major products struggling to reach the highs experienced in 2011. Cocoa and coffee have had a promising year, and we have seen companies investing heavily in the supply chain management and sustainability measures within these products. Companies continue to strengthen CSR measures and good Agronomists and plantation experts are increasingly sought after to help companies gain longer terms competitive advantage. Conversely it has not been a good year for the cotton industry, mainly because consumption remains below production, leaving large market surpluses and a lack of opportunity to cash in on demand outstripping supply. There has been a substantial amount of activity in the global sugar markets, both in established players, but particularly from a number of new firms looking to establish their presence in the space. Most significant has been the hire of Jonathan Drake from Cargill as COO and head of the global sugar business at Tong Teik. Here he has already been joined by several of his ex-Cargill employees, both in commercial and support functions across their European base in the Netherlands and Asia. Another senior figure in the market developing a new business is Terry Sparling, who has joined Export Trading Group from Standard Bank to build their international footprint and to complement their existing offerings across the agricultural markets. Most hiring in soft and agricultural commodities has been from large trading houses and agribusinesses. Similar to the past year, banks have been consolidating their impressive growth in the sector. We have also seen increasing activity in the Hedge Fund space, with several new funds established by veterans in the industry wanting to offer customers a different complex product – a skill developed from the experience and contacts they have established over their trading careers. Similarly, several of the major traditionally physical trading houses look to develop this part of the business, with Louis Dreyfus, Olam and ECOM among those keen to increase their derivative coverage.
AG R I C U LT U R A L C O M M O D I T I E S The most established agricultural commodities have seen a vibrant 2012, with some of the most renowned commodities houses looking to continue their expansion into the core markets. Mercuria complemented their existing biodiesel business with the hire of a team of Morgan Stanley traders lead by Andy Perkins in Singapore. There was also particular attention this year on the US and Canadian grain markets, with ongoing speculation surrounding the takeover of two of the major players in the market:Viterra and Gavilon. Glencore finally confirmed a $6.1 billion acquisition of Canadian based Viterra, whilst Marubeni eventually sealed a deal for Gavilon, the US grain trader, which has been delayed in recent months pending approvals from Chinese regulators. Gavilon also has an established presence in energies and the US fertilizer market – another sector that has seen significant growth this year. The fertilizer market has been growing progressively over the past couple of years with global consumption estimated to have increased by 6.2% during 2010-2011. Following this increase fertilizer production has boomed across the emerging markets of LATAM and South East Asia, with the manufacturing centres of Brazil, Russia and China growing to be the biggest markets. A large number of firms have been increasing their coverage in 2012, with Keytrade, Dreymoor and Helm among the most active across a number of regions.
S A L A RY OV E RV I E W
Junior Trader 1-3 years’ experience Intermediate Trader 3-6 years’ experience Senior Trader 7-11 years’ experience Head of Desk 11+ years’ experience
Europe (1,000£)
US (1,000USD)
Asia (1,000SGD)
45-77
45-95
60-90
70-120
95-135
90-135
130-195
140-245
140-190
200-310
250-400
200-300
We have seen large variations across the salaries for soft and agricultural commodities, the key compensation indicators comprised from; experience level, managerial ability, PNL accountability, geographic experience etc. Whilst on the whole firms have been expanding their headcount and continue to develop ways to attract high quality staff, there has also been a key focus on retention levels by ensuring relative attractive retention incentives are in place. These often include company stock options, clear career progression plans, regular salary reviews, international rotation experience, good medical schemes, and good overall general benefits. In an industry governed by revenue generation, profits and bonuses – traders continue to place the higher earning value on the bonus incentives. With the increasing government/trading restrictions coming into play we have seen a general decrease in the level of bonuses paid out this year. Nevertheless those with the proven ability to grow businesses and generate revenue are still able to secure large bonuses.
2013 MARKET FORECAST
In 2013 we expect the increasing activity across the global soft and agricultural commodities to continue and it is clearly an exciting time for the industry as a whole. Many of the established trading houses will be keen to see the continued growth of some of the markets newer trading ventures. Tong Teik for example is looking to complement their new sugar business with further hires and to expand in other products and regions, with planned growth to their coffee business in both Europe and the Americas. No doubt a number of the large multi-product soft commodity and agricultural houses will look to develop and capitalize on growth in expanding products such as fertilizers. Firms such as Louis Dreyfus, ADM and CHS are all known to be planning further hires in 2013 to compete with the already established and specialised fertilizer houses. How well they are able to compete and transfer their success into these new markets is yet to be seen but the initial signs are certainly promising with the recent acquisition by Yara of Bunge’s Brazilian business. There should also be continued investment into a number of other products to correspond with general market conditions. Specifically, we expect there to be a big pressure on large agricultural houses to develop and contribute to renewable energy markets such as biomass and biofuels, whilst we have also seen significant potential hiring across the global dairy markets in the last few months of the year.
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