The life-cycle of agricultural trading is a complex one. Each distinct stage moves from production to trading via a complex supply chain. In this article, we’re going to explore each of these stages and how traders can benefit from expert supply chain management.
What is Agricultural Trading?
Agricultural commodity trading involves the production and selling of any agricultural product. Agricultural products usually involve organic ingredients derived from plants or animals. However, in some instances, agricultural commodities can include synthetic materials used in the construction of agricultural facilities or equipment.
What Are the Stages of Agricultural Trading?
The image of a trader is often one of a business person shouting over others in a stock exchange, buying and selling shares. However, this is only part of the process. Agricultural trading involves distinct separate stages in order to ensure that those who produce the products are able to get them into the hands of consumers.
Let’s now look at each of these stages. Bear in mind that we have numbered them; however, some of these stages can alter in terms of chronology based on the type of product being sold.
Stage 1: Origination
The first stage is origination. This includes either the initial production of an agricultural commodity or the purchasing of it in order to create other agricultural commodities. The people overseeing this part of the supply chain are agricultural producers and often the agents of investors and other commodity traders.
Origination faces many difficulties, most of which are about creating the correct environment for the growth or production of the commodity. This is especially true in instances where the commodity is rarer or more sensitive to environmental changes affecting a crop.
Stage 2: Production Storage
Storage is a key part of the supply chain for any agricultural product. The reason for this is that most agricultural commodities will perish when not stored correctly. This could be food ingredients, chemicals derived from plants, meat, livestock, or any other commodity where storage conditions are essential.
This requires regular checks and management, something Kimon International and its partners offer in abundance.
As part of the supply chain, then, production storage comes after the product has been harvested. The correct physical infrastructure must be in place in order to store these products so they do not spoil. This includes ensuring that there are no pests or fungi ruining a crop or product. Correct temperature, humidity, air exposure and, in some cases, light levels, are a must for guaranteeing that a product remains viable.
Stage 3: Purchase and Sale Operations
When a sale is made, there has to be organizational oversight of the financing, transactions, preparation for transportation, and management of several key risk factors. All of this is best carried out by a supply chain management team.
During the sales process, FOB (freight on board) shipping or CIF (cost, insurance, and freight) shipping agreements must be put in place in order to facilitate correct transportation. These are agreements about who will carry out the transportation and how it will be paid for. This leads us to the next stage.
Stage 4: Transport
Transport infrastructure is critical to ensure that a product gets to its buyer quickly. For any agricultural commodities, speed of transportation is essential. If a product is not transported quickly enough it can spoil by the time it reaches its destination. This causes problems in terms of reputation for the producer as well as a supply catastrophe for the buyer.
Transportation also comes hand-in-hand with correct storage. The same rigorous and bespoke storage solutions we mentioned in stage 2 are required while the stock is being transported.
Supply chains cannot be properly managed if transportation and shipping are not overseen correctly. Kimon International’s network of resources ensures that the correct checks and procedures for storage are carried out at every stage.
Stage 5: Trade Financing and Commodity Trading
Due to commodity trading often requiring a low margin, high volume sales strategy, traders often require access to financing in order to fund any deals. This means that commodity traders have a close relationship with banks and other financiers.
When the finances are in place, commodity traders will carry out both physical trading and paper trading.