Market Knowledge
Farmwise Grains (PTY)Ltd also believes in sharing the benefit of our experience and insight in the form of market knowledge with our clients to ensure that everybody is up to date with the latest market trends both fundamental and technical as well as up to the minute pricing movements.
Ex-Farm and Ex-Silo Trading
Price risk management for the farmer and the mill
In the commodity trading model, Farmwise purchases or sells a commodity to be transported or stored and hedge the resulting commodity position via a derivatives transaction until the physical position is unwound by the sale or purchase of the original position.
We hereby transform the exposure to the commodity’s flat price into an exposure to the basis between the price of the commodity and the price of the hedging instrument and the location of the delivery contract to the benefit of all our clients.
Commodity prices can be very volatile, and indeed, can be subject to bouts of extreme volatility. Therefore, role players such as farmers and processors with flat price exposure can suffer large losses or make large profits. We try and guide our clients in such a way that they have limited downside risks and reasonable potential upside benefits.
We do this by using the following:
Flexible pricing component contracts for buyers and sellers
In theory, it is possible for farmers and processors to find a counterparty who would be willing, at some price, to enter into a contract that closely matches the sales or procurement needs of that farmer or processor every day that either of them wants to enter into a contract.
However, it can be time consuming and expensive to find such a person every day. Farmwise, using the futures market, acts as the counterparty for these buyers and sellers on a daily basis. This means that the Farmer and Processor with diametrically opposed pricing needs does not have to face each other in an adversarial position until their needs coincide.
Moreover, should it become needed for one of the parties to exit such a contract, Farmwise can accommodate both parties, without prejudicing the one or the other.
We do this by using the following:
Mill-door delivered contracts
Although the basis tends to be less variable than the directional price risk, basis can be volatile and subject to large movements, thereby potentially imposing large costs on processors. Basis risks generally arise from changes in the economics of transformation during the commodity cycle, and changes in transportation, storage, and interest cost can affect delivered prices across locations. Sometimes these basis changes can be extreme and it is these extremes that we aim to limited and contain where and when possible.