Top investment bank in Ag commodities

[BrettScott]

Heya,
Been doing research into commodity trading but can't find very much info at all on who the top investment banking players are in agricultural commodities. Risk magazine only profiles the energy and metals markets, but not ags. I'm trying to work out who is going to be hit by rules on position limits and prop trading, especially in the UK. The only rankings I can find are for Asia, where BarCap, JPM and Deutsche seem to have made inroads on grains and softs. Anybody out there got any ideas?

 

[anley]

None of the investment banks are that big in commodities. What you see in futures is only the tip of the iceberg so the position limits won't effected anyone that much. Plus, the markets are generally small in comparison to financials so financials is where 90% of the speculation is done (by the banks).

80% of the business is done in the cash market and banks don't have those contacts. Only the big commodity companies like ADM and Cargill do.

Plus, when have rules ever got in the way of making money - the problem of position limits can easily be overcome..............

 

[BrettScott]

Cool, thanks for the info.

When you say 'tip of the iceberg', do you mean the futures are just used to hedge the OTC swaps that are being written, or am I misunderstanding you?

I'm just interested by the fact that BarCap's 2010 figures show it's average daily VAR in commodities to be £16 million. That seems quite a lot, especially considering that the total notional outstanding of commodity derivatives held for trading at the end of 2010 was only like 2.7% of the total derivatives it had outstanding. Having a hard time reconciling the figures, unless I'm missing something. Check the VAR figures below. FX and IR are much bigger markets, but BarCap must be making something in commodities in order to allow that kind of VAR on a daily basis.

• Credit spread risk: £48 million
• Interest Rate risk: £33 million
• Commodity risk: £16 million
• Equity risk: £14 million
• Foreign exchange risk: £6 million

None of the investment banks are that big in commodities. What you see in futures is only the tip of the iceberg so the position limits won't effected anyone that much. Plus, the markets are generally small in comparison to financials so financials is where 90% of the speculation is done (by the banks).

80% of the business is done in the cash market and banks don't have those contacts. Only the big commodity companies like ADM and Cargill do.

Plus, when have rules ever got in the way of making money - the problem of position limits can easily be overcome..............

 

[anley]

By tip of the iceberg I mean if you take the total amount of commodity business done worldwide and then see the nominal value of the futures open interest you'll see the futures are the tail, not the dog.

As for VAR, sorry I've heard of the term but don't know what it means, nor do I want to

What you'll probably find with barclays and the other banks is they're dealing heavily in the cash market mainly oil and metals both for speculation and for hedging of their clients and of course lending money on the back of commodity deals to their clients.

Look and you'll probably find a lot of their business is chartering tankers full of oil, stuff like that.

Chances are they're not looking at Corn futures and saying let's accumulate or if they are then it's a few of their prop traders doing so and even if their positions are a few thousand lots it's nothing that big.

As for getting over position limits it's easily done if you have the money and backup, just use different entities in different countries that have a secret relationship, this has been done again and again over the years and it won't stop. Sure, problems if caught but then these companies have power behind the scenes to make problems go away..........

 

[BrettScott]

Thanks bruv,

VAR - value at risk: Indicates what they think they can lose on trading positions on any one day. The 16 million figures for commodities means they are 99 percent certain they won't lose more than 16 million a day in commodities.

 

[anley]

The 16 million figures for commodities means they are 99 percent certain they won't lose more than 16 million a day in commodities.

Using past data no doubt. Now, where have we seen these things blow up in the past