Transforming goods

The role of the commodity trader is to match supply and demand, and to do so in the most cost-effective way.

Commodities are not necessarily readily available where the demand lies. Cocoa for example, used by Swiss chocolate manufacturers, is grown only under the Tropics, in Africa, South America and increasingly in South-East Asia.

The role of the commodity trader is therefore to bring the supply of cocoa in Africa and the demand for it in Europe together. They do so by organizing the commodity supply chain between places of supply and places of demand and managing the attendant risks.

In addition to bridging the geographical divide, traders also play a fundamental role in briding the different time horizons of growers/producers who often face seasonal factors and consumers who may want to consume products all year long.

Finally, traders also play an important role in processing raw materials.

As such, commodity traders are transformers: across space, time and form.

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Space: transport from A to B

This is the core function of the commodity trader: transporting commodities from where they are produced or extracted to where they are used. Traders do so by organizing the shipment of commodities from A to B and managing the attendant risks: price risks, operational risks, financial risks.

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Time: storage, market structure, forward sale

Mismatches in the timing of production and consumption creates a need to engage in temporal transformations such as storage.

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Form: processing, refining, blending

Whether it is agricultural produce, energy or metals, most commodities need to undergo processing to meet the characteristics of final products ready for consumption. Just as crude oil requires refining and blending in order to be suitable for modern vehicles, soybeans for example are crushed to extract the useful vegetable oil and the meal that can be fed to livestock.

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