I am an agribusiness pro who has traded agricultural commodities (ex-Cargill) for 30 years. Ask me anything!

What would it take for huge agricultural commodities traders like Cargill to stop buying and selling soy produced from illegal deforestation?

Genuine question, not just soapboxing I'm keen to know from your perspective what solutions actually look like.

I believe Big Ag firms are genuinely committed to doing business responsibly. They have a long-term focus and want crops to be raised year after year. That interest aligns with farmers and consumers as well. There are some good examples of alliances between producers, consumers and merchants working together in palm oil and soybean production to help support sustainability efforts.

These initiatives tend to be incredibly small in relation to the scale of the deforestation issue though as you're aware, and in many of the key sourcing regions it's 95%+ of the product being sourced from illegal deforestation with Cargill (yourself, previously) making a huge profit from this commodity.

It is entirely feasible for traders to enforce full traceability and moratoria on illegally deforested soy, but there is currently a significant economic incentive not to. Can I ask again what do you think it would take to overcome this?

Understand if you don't actually want to answer and upset friends and contacts but did hope this was an actual AMA more than an industry figleaf.

Here is a good resource for anyone who wants to learn more about how the model is working in palm oil. There are multiple, similar initiatives in soy industry but palm is most comprehensive. Lots of resources from multiple parties focused on this issue.

https://rspo.org/

Say an individual makes a large bet on a particular agricultural commodity, perhaps gourd futures, and loses. Could the individual end up being forced to take physical possession of the gourds? If yes, could you speak to the logistics of the forced delivery of many tons of vegetables to a single family residence?

The vast majority of commodity futures contracts are closed out before expiration and never get to the physical delivery stage. Most futures exchanges also have rules which limit trading participation in the days before expiration to market players who are registered to make and take physical delivery so the situation you are describing can be prevented,

At any given moment, what ratio of commodity food crops (corn, wheat, potatoes, etc.) are tied up by contracted production vs. available to the spot market? Does it vary wildly between commodity types (cereal grain for premium bread flours vs. corn for liquid dextrose production)?

Most commodities are grown for the "open-market" and are not contracted before they are produced. Thats why it is important to have visible and viable futures markets to send price signals to both producers and consumers. There are production contracts used for specialized crops as you mentioned - specific wheat types or oilseeds with specific traits - when those attributes aren't easily reflected in futures market contracts.

So most production is open market? Do you have any idea what the ratio is, or is it too crop-specific to generalize?

You mention oilseeds - Canola is a great example of an emergent designed crop that sort of took over (at least in the USA) that segment of ag - it knocked sunflower and other oil crops out of the running for decades (though they're making a comeback). Is most canola contracted, or is most canola open market production?

The sector I'm most familiar with, the brewing industry, is almost entirely contracted (barley for malting, and hop varietals for beer flavor), though industry collusion and price-fixing is actually driving people back to the open market.

It is crop specific, but for the largest traded futures markets - wheat, corn, soy- the vast majority is grown for the open market. For those crop where there is a special variety grown on a production contract, the pricing formula usually has a component that references the underlying commodity price and then adds a specific premium for the special attribute.

Is there an orange juice futures market and are farm reports as secret and impactful as "Trading Places" made it out to be?

There are market reports for most major commodities that are released by USDA. The contents of the report are held in confidence until they are released so the market is getting the official news all at the same time. There are many public and private forecasters who try to predict what the reports will say, but no one in the market has the results before they are released. When there are big changes, the market can definitely react strongly - like in the movie!

Have you seen any developments in the futures/insurance market for crops? From what I understand, the only way to insure against something like climate losses would be to buy a futures contract. Are there any new products popping up now that there's a ton more volatility due to climate change? Could there be a repeat of the myriad of insurance and default swaps contracts that plagued housing and MBS markets in the lead up to the crisis?

Buying a futures contract would give you price protection, but only for the duration of the contract - typically a year or so. That time frame may not match up with timing of your concerns on the impact of climate change. There are insurance products available for farmers to protect against their loss of a crop which they can buy each growing season.

In the real estate market we've seen insurance costs rise nationally by up to 300% in the last year, causing mass ruin for financial models and signaling poor performance and rising consumer costs for years to come. Has the agriculture industry also been suffering from the insurance squeeze?

Nobody, including the companies we're paying to know, seem to know what's coming next. Everyone just keeps telling me to "expect everything to get even more expensive".

In the US, most crop insurance programs are government driven. They use demonstrated production data and local crop price information to help quantify risk and loss.

I live in a rural Indiana town and one of the local radio stations still plays Agribusiness reports from the Brownfield Radio Network. My question is this: Do you think that's a worthwhile investment to continue such a thing on terrestrial radio? I only know it's a thing because my Bluetooth disconnected while driving and I didn't want to pull over to fix it.

Today there are lots of sources of ag information available - but I love hearing ag news on the radio.

How much of the ag commods market is made up of traders and speculators vs farmers and producers?

The physical production and shipment of commodities is mostly confined to farmers and traders. Those are the ones who are in the actual supply chain. Alongside that, the futures market pull in traders and speculators who play a role in price discovery without touching the physical product. Its interesting that the volume of trade in futures is larger than the physical volume. As an example, the corn futures markets will trade a volume 5x or more of the annual production of corn.

If El Nino brings some truly funky weather, how will this impact soft commodity prices over the net 6 months?

In my experience, the anticipation of El Nino impacts has usually been greater than the actual impact on production. Markets seem to do a good job of looking ahead at what might happen and pricing it in advance.

I dont know what this year will bring, but in my experience, the anticipation of El Nino impact is usually greater that the actual impact. Markets seem to do a good job of pricing in the possiblities early on.

Hey Doug! My question is: how do you see technologies like hydroponics affecting the agriculture market, and from your perspective, which markets would stand to benefit the most from a hydroponic, local supply chain?

I really dont know much about hydroponics application in the mainstream ag markets.

Do you think that disruptions to the fertilizer and grain markets due to the Russian-Ukrainian war will be a cause of global food scarcity?

If yes, how would you estimate the severity of the scarcity? Thank you!

The conflict in Ukraine has undoubtedly been very disruptive to people directly impacted but the global food system has, for the most part, adjusted well. Grain has been shipped out of the region to markets that needed it and while prices spiked immeadiately after the invasion, they have stabilized at levels lower before the war. Global wheat production in 2023/24 will be higher than either of the previous two years,

Hi Doug! I know next to nothing about your industry, but I do find it interesting. Here are a few questions that I’m curious about.

Are there any emerging technologies or services that you think are going to shake up the sector? Whether that be in production, shipping, number crunching, or some other aspect that’s less obvious to me?

Next, as you mentioned, the human population is likely going to keep growing. Do you foresee any changes needing to be made in our current agricultural systems to meet increasing demand? Do you think any major shifts will need to be made in order to facilitate these changes, or is it likely that the average consumer won’t even notice anything different in the coming decades?

Lastly, sort of in line with the previous questions, have you been witness to any revolutionary changes or big mess-ups in the industry that absolutely rocked your world? Or are the changes/issues usually pretty easy work around?

Thanks!

I am optimistic about the ability of the global food system to continue innovating to keep producing more food to feed a rising population. There is still a large spread between the best and the rest in terms of how much can be produced from an acre of land - both within any country and between different countries around the world. Dispersing best practices more widely will help production continue to increase. Despite some short-term pressures and pain points, the percentage of total income spent on food has declined steadily over time and that is a good thing.

What are the main drivers of agricultural futures prices?

Supply and demand are the biggest drivers. Weather plays a huge role in determining supply. Population, income and taste preferences play a big role in determining demand. In general, both supply and demand are growing over time but in shorter intervals there can be surpluses and deficits that swing prices.

How can an individual invest in agricultural commodities?

An individual can trade agricultural commodities with an account at most major brokerage firms. They can also invest in companies who trade and use agricultural commodities or in suppliers to the ag industry like seed companies or tractor makers.

Did you use the Commitment of Traders report by the CFTC ?

Yes! CFTC reports are a good indicator of who is participating in the market and how their positions might be changing from week to week.

Is there any room left in the commodities industry for “old school” traders who have been doing it for decades, or has it all been overtaken by computer-aided decision making (similar to the stock market)?

There has without a doubt been a big increase in the computer model-driven trading of commodity futures, but fundamental based traders still play a big role in the markets and fundamental events like weather and political developments still move markets. I would say models drive a lot of short-term trading while fundamentals drive the longer- term price trends.

I remember last year when Russia invaded Ukraine talks about how dangerous the sanctions were, because Russia makes like 90% of the fertilizers used globally. Is this true?

Russia is a major producer of several types of fertilizer, but on a scale similar to many other countries. The overall production of fertilizer is quite diverse.

what ag commodity imports do you think China will continue to rely on in the next five years?

I believe China will continue to be a major importer of ag commodities, but also think they will be pushing for more self-sufficiency and less reliance on imports so there role as an importer will decline marginally. I expect they will shift some imports towards grains and away from oilseeds.

I am a high school Agriscience teacher (and FFA advisor). Could you offer any advice to young people who would want to go into Agribusiness?

Get the best all-around education possible. Find out what kind of things you are good at and what you like doing. Whether that turns out to be trading, running an operation, sales/marketing or doing lab research you can find a place to apply it in the agricultural industry.

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There are more sources of weather information availble than there were several years ago and improved computing power has increased modeling capabilities but the actual prediction of weather remains volatile.

Possibly a weird question but what do you think of agribusinesses potentially getting into insect farming i.e. crickets for chicken feed?

Do you think there is much room for growth in this field or do you think it's not possible culturally or legally?

I dont know much about it but it strikes me that the scale of production for insect farming might suit small players better than larger established agribuinesses,

Hey, on/off commodities prop trader here so it's super cool to see an AMA from someone who's in the know. Also, sorry that you're probably gonna have to deal with some assholes here... I think a lot of people misunderstand the markets - or the power of pricing - and believe it's a conspiracy to make some rich and others poor. Anyways...

Some questions - as one of the commodity powerhouses is Cargill trading in virtually every commodity? What is their trading style - is it to take physical delivery or simply to make money in the ebbs and flows, I'd assume both? Secondly Would you say there's much of a difference between trading to actually take physical delivery than simply to make a profit? What types of trading styles do you employ? Any order flow, algorithmic, etc... or is it more of a directive that you need to hold X number of contracts and attempt to get them under $X.XXX?

What's your favorite market to trade and why that market?

What was the hardest time or trade you've ever been a part of? Did it work out?

Any ideas or old edge for trading term structure near contract expiration?

Thanks for the questions. Cargill participates in most of the widely traded ag commodities (wheat, corn, soy, cotton, cocoa, palm) but not in all - coffee and rice for example. I would describe ABCD firms as physical players who use futures markets to manage risk and capitalize on trading opportunities. These firms all have major investments in infrastructure (people, facilities and equipment) to support what they do in the supply chain. For me as a trader, I would describe my approach as blend of fundamental and technical analysis but with a much shorter time horizon than a firm who trades larger positions and handles physical product. I think the soy and cotton markets are best suited to applying that approach - liquid with a good mix of tech and fundamental participation.

Hi! Agriculture teacher here. Elementary school. I'm new to agriculture, not to teaching, but my state has agriculture as its #1 economy.

Two questions. 1. Where do you think it's best to start to get students really interested in learning more about agriculture and the diverse jobs associated with it? 2. What do you wish you could teach your past self in childhood that would be extremely helpful in succeeding in any agriculture field?

For elementary school age groups, I would suggest an activity that tracks a supply chain from start to finish - i.e. farm to finished product. Cotton and Soybean are two crops who have an interesting production and processing story and very diverse end uses. The trade industry groups have materials that could help support this.

This is probably more applicable for older students: I had a good education growing up but still wish I had done more to really learn across diverse areas. I ended up wishing I knew more about chemistry and biology as those areas came up in my career -even though I was more on the business siide.

Do you think that smaller businesses in the agribusiness sector fully grasp the benefits of having the option to hedge during periods of price volatility?

From my work experience, it's pretty surprising how many of these smaller businesses actually have the capital and funds to make hedging worthwhile. I'd love to hear your thoughts on this.

I do think there are opportunities for firms across the supply chain to use hedging more extensively. That might mean actual futures or utilizing customized OTC products that use averages or min/max prices to manage risk. Those products may have a cost but can be easier for some firms than managing margin calls and accounting for a futures position.

Thanks for all the great questions! I will pause now and check back in on the discussion later.

This may be a bit outside your areas of focus, but for someone interested in a career in agricultural research, do you have any recommendations for crops or other specializations to focus on that would maximize public benefit and long-term job security?

There is a lot going on in this area and tons of opportunity - seed varieties, disease and drought tolerancce, satellites for imaging and positioning, block chain for transactional applications and many others. Corn, wheat and oilseeds are most widely planted crop so likely to have the most action. The world will always need agriculture!

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Profit is a motivator to develop better seeds and other inputs to produce more food globally, transport it more efficiently and make it more abundant and less scarce.