19 min
Commodity Markets Disrupted for the Sake of Fairness English language Visionary Marketing Podcasts
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- Business News
Wheat prices are spiking. Because of the present structure of commodity markets, hedging intermediaries benefit the most. To find out why, Yann Gourvennec, CEO of Visionary Marketing, asks Noah Healy, founder of Coordisc, to shed light on this topic.
Disrupting Commodity Markets for the Sake of Fairness
The price of wheat had a steep spike and is continually fluctuating. Inflation and supply restrictions are to blame.
However, the farmers do not gain from this spike. Hedging middlemen are the ones lining their pockets because of the current commodity market structure.
Noah Healy, the founder of Coordisc, seeks to disrupt this commodity market and provide a fairer solution.
What are Commodity Markets?
Commodity markets link producers to consumers. A commodity market is typically a virtual marketplace where one can sell, trade, or buy different commodities immediately or at a future date.
The primary customer base is hedge funds and other internal traders. This is a financial system similar to a brokerage or a bank.
You go in and make bets on where you think prices are going to be in the future. If somebody exists that is willing to take the other side of your wager, then the system writes that up and publishes the fact that somebody made this bet
Next, within a millionth of a second later, this happens all over again with all the people that showed up in that microsecond to make those deals.
Each deal has an expiration date on it. On that date, all the bets that have not yet been sold off and liquidated settle. About 97% will settle out and 3% deliver.
This is referred to as “futures.” An agreement to buy or sell a specific commodity at a future date and price.
Commodity Markets and Farmworkers
The farmers engage in the commodity market to work out the value they will be able to get for their crops.
Most farmers operate on credit and borrow money every season. They must be assured of their revenue streams so that after a regular season, the loan can be paid off.
With good credit history, farmers can continue receiving loans. Thus, farmers are forced to accept the prices the market offers, locking themselves into these future situations.
Ukrainian Crisis Raises Wheat Prices
With the Ukrainian crisis, fields have been destroyed and Russia may stay under sanctions. There seems to be a “durable supply contraction.”
Other parts of the world should increase production to offset the loss of wheat in Ukraine. However, because farmers’ incomes have been contractually agreed upon, they are not sensitive to price increases.
The price increases do not affect farmworkers because they have already agreed to a specific price. The people that offered the farmers those hedges receive the windfall.
However, Russia recently struck a deal with Ukraine to allow grain exportation. Due to the war, the supply had been previously staying in Black Sea ports.
Russia will allow Ukraine to export 22 million tons of grain and other agriculture. It is unpredictable as to how the deal will affect wheat prices or if Russia might retract this agreement in the future.
[Note: the long term trend can be seen above,
Wheat prices are spiking. Because of the present structure of commodity markets, hedging intermediaries benefit the most. To find out why, Yann Gourvennec, CEO of Visionary Marketing, asks Noah Healy, founder of Coordisc, to shed light on this topic.
Disrupting Commodity Markets for the Sake of Fairness
The price of wheat had a steep spike and is continually fluctuating. Inflation and supply restrictions are to blame.
However, the farmers do not gain from this spike. Hedging middlemen are the ones lining their pockets because of the current commodity market structure.
Noah Healy, the founder of Coordisc, seeks to disrupt this commodity market and provide a fairer solution.
What are Commodity Markets?
Commodity markets link producers to consumers. A commodity market is typically a virtual marketplace where one can sell, trade, or buy different commodities immediately or at a future date.
The primary customer base is hedge funds and other internal traders. This is a financial system similar to a brokerage or a bank.
You go in and make bets on where you think prices are going to be in the future. If somebody exists that is willing to take the other side of your wager, then the system writes that up and publishes the fact that somebody made this bet
Next, within a millionth of a second later, this happens all over again with all the people that showed up in that microsecond to make those deals.
Each deal has an expiration date on it. On that date, all the bets that have not yet been sold off and liquidated settle. About 97% will settle out and 3% deliver.
This is referred to as “futures.” An agreement to buy or sell a specific commodity at a future date and price.
Commodity Markets and Farmworkers
The farmers engage in the commodity market to work out the value they will be able to get for their crops.
Most farmers operate on credit and borrow money every season. They must be assured of their revenue streams so that after a regular season, the loan can be paid off.
With good credit history, farmers can continue receiving loans. Thus, farmers are forced to accept the prices the market offers, locking themselves into these future situations.
Ukrainian Crisis Raises Wheat Prices
With the Ukrainian crisis, fields have been destroyed and Russia may stay under sanctions. There seems to be a “durable supply contraction.”
Other parts of the world should increase production to offset the loss of wheat in Ukraine. However, because farmers’ incomes have been contractually agreed upon, they are not sensitive to price increases.
The price increases do not affect farmworkers because they have already agreed to a specific price. The people that offered the farmers those hedges receive the windfall.
However, Russia recently struck a deal with Ukraine to allow grain exportation. Due to the war, the supply had been previously staying in Black Sea ports.
Russia will allow Ukraine to export 22 million tons of grain and other agriculture. It is unpredictable as to how the deal will affect wheat prices or if Russia might retract this agreement in the future.
[Note: the long term trend can be seen above,
19 min