About Trade Finance Global

Trade Finance Global assists companies with debt finance. While we can access many traditional forms of finance, we specialise in alternative finance and more complex funding structures.

At Trade Finance Global we think that in order to create the correct financing package; a fundamental grasp of the business is key. By understanding the history and growth potential of your business, we are effectively able to partner with you for long term growth.

Find out more here.

Global Economic Markets: What’s the Big Picture?

Since the 2008 financial crisis there has been a recovery and general upturn in global markets. This recovery has been aided by central bank liquidity and growth in emerging markets, (predominantly China,) although 2016 has been challenging. Growth has slowed this year and it is thought that low interest rates will continue. One must question what central banks do when quantitative easing fails; they purchase sovereign bonds, mortgage bonds, ETFs, corporate bonds.

In the world of politics and economics, to describe 2016 as a rollercoaster year is probably an understatement. The rise of disenfranchisement, de-globalization, self determination and building walls (figuratively and literally) has been seen. As a result, currencies have seen volatility, particularly amongst the US dollar, pound sterling, and euro. Recent events have certainly demonstrated how contagion within a country can cause parties such as UKIP gaining popularity over the EU referendum, and still leave after the leave vote was cast. Many who are discontent with the system perceive government as elitist, and as Karl Marx thought, free trade will lead to uneven outcomes with a revolution that will follow. This is what we are seeing; unexpected outcomes.

It is thought that rules will most likely change in the world order in the short term and we will see this with more central bank independence, small governments, more leveraging than de-leveraging, pressure building at home and China being a major beneficiary. Merkel has openly outlined in recent months that competition is developing and those in China want to get ahead. This is seen when looking at some commodities in isolation as 65% of steel production is in China.

Speakers at Global Grain Geneva suggested that interest rates will be lower for longer and there will be anti-globalization, Brexit being seen as a symptom of wider issues. It will remain a challenging environment, as we are seeing more occurrences of challenging politics and ‘anti-globalisation’. (See our recent report on Globalisation 2.0.

Finance, Grain and Oilseeds

Financing for commodities and crops is difficult. Trade Finance Global recently put together a series on how the Blockchain is transforming trade finance (see our piece on Finextra and Brink News).

Meanwhile, grain and oilseeds are undergoing transformative change with an increase in M&A activity. Here are the big trends:

• There is a strong outlook for M&A activity in the grains and oilseed sector as regional leaders seek growth or are acquired
• There has been an increasing M&A demand from Asia. Asian players have positioned themselves in the Brazilian G&O market (e.g. Mitsubishi entering Brazil)
• In the Middle East, the Black Sea port has a capacity of >110m tonnes of throughput and will require a 10-20% expansion by 2030
• Sub-Saharan Africa is expected to take over the wheat import position of North Africa
• Brazil is currently the second largest global soybean producer, but this is likely to go to number one
• China is predicted to be at the future of Corn and Soybean production

What about financing Grain and Oilseed?

We are seeing that strong Ukrainian companies and producers are finding it difficult to get finance and small farmers are paying 16-20% of annualized costs on borrowed capital. It is a big problem as there is no public or private funding for stock finance. There are also problems with transport and the relatively outdated tax system, as seen with the barge transportation system; which is usually the cheapest mode of transport. In Ukraine it is at a high cost, usually being more expensive than railways.

In Russia there are currently incentives to build infrastructure and we are seeing the building of much of this in port; or where people have access to good land.

Global Weather Outlook for Agriculture

Image: La Niña is correlated with precipitation patterns. The map above shows rainfall deviations during La Niña events which are nearly the opposite of El Niño

Here is the latest Climate Briefing produced by the International Research Institute for Climate and Society about the 2014 El Niño. Source: iri.columbia.edu/enso

Iran: What is happening in the Iranian Agriculture Industry?

Shahnaz Banounam, Foreign Affairs Manager of the Federation of Iranian Food Industries Association spoke on Iranian agriculture. The presentation was prepared by Kaveh Zargaran, the Chairman of Agricultural Commission in Tehran Chamber of Commerce and Secretary General of Federation of Iranian Food Associations, discussing the situation in Iran and the current outlook. There has been:

• Improvement in the business climate
• Termination of international sanctions
• Investment
• Hard fiscal discipline
• Expansion in the non-oil exports
• Reduction in the monetary base
• Nominal exchange rate stability
• Positive trade balances
• Inflation reduction

What are the challenges in current Iranian policies and what’s their impact on the agriculture industry?

Grain production has increased in the last 3 years and reached 17.5 million tonnes in 2014/2015 and then increased to 18.2 million tonnes in 15/16. Iran imported more than 16.5m tonnes of grains in 2014/15, an increase of 55 percent. Bird grains import reduced by 28 percent because of sufficient reserves in 2015/16.

Iran imported more than 6.3 billion dollars of grains in 2014 and was the second biggest importer after Japan. There is a firm supportive government policy in place.

Wheat

GRAPH: Wheat Production in Iran

Wheat production had a lot of fluctuations during the past 10 years. Average wheat imports was 2.8m tonnes during the past 10 years and since April 2016 wheat imports have been stopped to protect local production and this will continue. Iran imports more than one million tonnes of flour, mostly from Turkey and previously over four thousand tonnes of wheat per year.

Iran has 315 flour factories with 20 million tonnes of yearly production capacity. After wheat, barley is the most planted grains with more than 1.76 million hectares of growing area.

Corn

The Iranian corn plantation area was 135 thousand hectares in 2016, which has shown a 55 thousand hectare reduction. Corn production will also be 1.2 million tonnes in 2016/2017. Currently in Iran, the plantation is mostly done on the basis of precipitation, so it is very dependent on the weather conditions.

Vegetable oils

There are 50 vegetable oil extraction units in Iran with a capacity of 4.5 million tonnes of production. Soyabean imports makes up one and a half million tonnes; which is 70 percent of the total vegetable seed imports. Sunflower seed imports stand as the second top raw material.

Mark Abrams at TFG speaking on the panel at @Global_Grain #gggeneva pic.twitter.com/q0R4A92OMT

— Trade Finance Global (@tradefinglobal) November 9, 2016

India: An Overview of Grains Production in 2016 and Predictions for 2017

David Hightower spoke about the economy in India, which has seen phenomenal economic growth in recent years with annualised GDP growth at between 7-10 percent.

Graph: India SIAM (Automobile) Exports as a proxy for economic advancement and the pace of change in the conomy

The golden quadrangle was discussed with the 5,000 Kilometres of highway in India created to allow the country to be joined up and enhance trade flows. It is also important to note that India has a strong GMO concern which slows the increase of food into India.

We have seen trading increase in sophistication as the rise of prop traders has meant that there are more synthetic instruments, which are traded to hedge risk.

Possible Problems in India

• There are power outages across India, which are well known. However, this problem is easily eradicated by importing power and using more advanced technology
• It is the largest populous country in the world
• A stronger currency is improving imports but hurting exports
• A lot of Indian assets are tied up in non-stimulative environments
• Indian governments have taken savings notes out of circulation with the aim that people will use more savings accounts to stimulate the economy
• There is a push for people to put gold with central banks, so that they will receive interest-bearing notes
• India is in a huge transformation with large steps taken to stimulate the economy
• India and China – don’t have central bank capacity that the US does, so there are inflationary problems possible and there could be commodity price shocks

Global Grain: What Next?

Trade Finance Global had an excellent time at the Global Grain Geneva conference. Thanks to all those who sponsored and supported the event.

The world’s wheat market remains in a bearish mindset with record supplies. However, quality problems, or concerns about quality problems, in some of the biggest exporters have injected a more bullish tone to some sections of the market.

“World wheat export prices continued to have a generally weak tone during September, pressured by record global supplies,” the International Grains Council (IGC) said in its Grain Market Report. “However, with uncertainty about quality problems in harvests spreading to more areas, including Canada and Australia, market sentiment was comparatively more bullish for higher grade milling wheats.”

As for rice, we’ve seen a record year of rice production in 2016-17, which will exceed consumption, triggering a rise in stocks. Prices around the world have fallen.

Global oilseed prices have been pushed up as a result of concerns over the U.S. weather, against the background of an already tight market.

“Global soybean markets advanced sharply in June, the IGC GOI sub-index rising by 13%,” the International Grains Council (IGC) said in its Grain Market Report in July. “U.S. futures were underpinned by firm export demand, partly linked to tighter than anticipated supplies at South American origins.”

Overall, world grains production will break records again this year. Although usage also is expected to rise, ending stocks will be higher and export availabilities will be ample.

“A positive outlook for global cereal production in 2016, together with abundant stocks, points to a generally comfortable supply and demand balance in 2016-17,” the Food and Agriculture Organization (FAO) said in a Cereal Supply and Demand Brief issued Oct. 6.

#GGGeneva – Twitter Highlights

@globalgrain We welcomed our clients yesterday to an unusual pre-opening cocktail at the famous #boucheriedumolard of #Geneva #gggeneva pic.twitter.com/ATqZTcezWf

— BNP Paribas in Switzerland (@BNPParibas_CH) November 9, 2016

A snapshot on the ethanol industry at the @Global_Grain #gggeneva16 pic.twitter.com/1EW7pvSvtB

— Trade Finance Global (@tradefinglobal) November 10, 2016

Day 2 kicking off @Global_Grain #gggeneva16 pic.twitter.com/wahD8tzmuI

— Sandra Boga (@chicacacao) November 10, 2016

NOW: Our Alain Butler, Senior Advisor Soft Commodities, is speaking on exploring supply chain opportunities at @Global_Grain #gggeneva16 pic.twitter.com/ctyWzaTupf

— BNP Paribas in Switzerland (@BNPParibas_CH) November 10, 2016

#Iran dependent on imports for around 80% of 7 million t corn demand. #gggeneva16 @Global_Grain.

— Jonathan Rowland (@jonorichard) November 10, 2016