In the financial press, regular readers will read about the commodification of many industries. In the world of commodities, the rules of supply and demand are the important as well as understanding there will be a number of industries that use the commodity and they want to lock in their expenses, However, there is money typically called speculative which tries to forecast supply and demand and either buy calls or puts depending on their viewpoint. If the view is correct, prices will rise or fall or prices will fluctuate. The higher the fluctuation, the greater the possibility of profit. A book examined the traders who have made and lost great sums of money is called The World for Sale by Javier Blas and Jack Farchy, published by Oxford University Press, NY, 2021.

Every country in the world is blessed with something that brings in revenues to the country. Sometimes the revenues are not enough, but the country has a commodity which can be bartered or traded. In the case of Jamaica. In the early 1980’s, oil prices were high and Jamaica’s oil refinery needed 300,000 barrels of oil was needed. The normal process was for the Central Bank to provide a guarantee for $10 million to cover the cost of oil. It did not have the money. The Finance Minister called Marc Rich who arrange a shipment of Venezuelan crude to stop in Jamaica before going to the east coast of the US. Traders could and can do this.

Jamaica is home to the famed blue mountains and they contain the world’s largest supply of bauxite. The mineral is also found in Australia and Guinea. For decades the market for aluminum was dominated by a few North American companies headed by Aloca. The international assets of the company were broken off in 1951 to form Alcan. In 1955, the 6 largest aluminum companies controlled 88% of the non-socialist world’s bauxite supply, 91% of its alumina and 86% of the aluminum. Under a gentleman’s agreement, Eastern Bloc countries did not send their aluminum out to the world market. Prices were set until the 1970’s. In the 1970’s many countries decided to nationalize or buyout the major companies. Jamaica soon owned the company’s bauxite mines and alumina refineries. However, the company had little expertise in selling or shipping it, for traders this was a dream scenario.

The oil price is related to aluminum industry because to make aluminum lots of energy is needed and many hydro electric plants were founded on cheap oil, which changed when OPEC raised prices. The aluminum plants that exist today have water hydro plants beside them. In the 1970’s before the shakeout, prices of alumina fell. Traders such as Marc Rich, they negotiated a very good contract with Jamaica for the alumina and then found refineries in the US to make aluminum. In short order, they were to become the world’s largest aluminum makers competing with Alcoa and Alcan and without actually running any smelters.

In the book, when Russia changed its economy, the traders were there to capitalize on the changes. There are many stories about the challenges and rewards.

In the paper you will read about changing weather patterns which affects crops and the ability of the area to feed itself. The world of trading grains is dominated by ABCD or Archer Daniels Midland, Bunge, Cargill and Louis Dreyfus. All of them have large trading desks to take advantage of supply and demand. Cargill’s trading company is called Tradax based in Geneva since 1956. When countries need grain, Cargill’s traders are aware of it and can profit from increased demand.

In the oil or metals, there are a few key suppliers, this means after determining who is winning the contracts, information is not a large informational advantage. In the world of agriculture, there are thousands of individual farmers. For companies dealing with many farmers, it gives them valuable information or big data to do trading with. Within each trading company of the ABCD is the traders who want delivery and those who are trading on the company’s money known as proprietary or prop traders. Most of the money made is by the prop traders.

In the decade to 2011, Vitol, Glencore and Cargill enjoyed a combined net income of $76.3 billion. That was 10 times the profits the traders were making in the 1990’s.

Linking to dividend paying stocks, trading has grown to be the profit centers of investment banks and non investment banks. As long term investors, you like the near monopoly conditions of the companies you own, but every once in a while those businesses are broken and as they change to the market, trading conditions will exist. How does a business make its profits is always a question worth asking?

There are more questions than answers, till the next time – to raising questions.