ADM is one of the world’s biggest food processing and commodities trading companies. Weirdly, it tends to receive a lot less attention than some of its competitors like Glencore and Cargill.
Even less well known is the fact that ADM also has an investor services arm, which — among other things — offers commodity brokerage and derivative clearing services to all sorts of market participants.
As part of that service the group publishes a quarterly publication called Ghost in the Machine, edited by Eddie Tofpik and Marc Ostwald. This quarter’s edition features a number of interesting tidbits. Here are a few of them.
Both Russia and Ukraine were on track to produce 50Mmt of wheat in the 2021/2022 marketing year. The exportable surplus was expected to be 24Mmt, making Ukraine the third largest exporter (about 12 per cent of the global export market).
Ukraine was expected to produce 42Mmt of corn in the 2021/2022 marketing year, with an exportable surplus of 33.5Mmt — around 17 per cent of global exports. This makes Ukraine the fourth largest exporter.
According to ADM, Russia and Ukraine were on track to supply an amazing 78.5 per cent of the world’s sunflower exports. This supply is important not just for human consumption but also as an alternative to first generation bio-diesel feedstocks.
But it is Russia that is the world’s largest grains exporter, holding about c.17-20 per cent of global export supply.
“Without synthetic fertiliser billions of people would never have been born”
In a piece by Jonathan Kingsman, author of Commodity Crops & The Merchants Who Trade it is noted that according to Vaclav Smil’s Enriching the Earth, “there is no way to grow crops and human bodies without nitrogen”.
The piece uses the chart below from fertilizer.com to further illustrate the point:
Before Fritz Haber worked out how to synthesise fertiliser all the usable nitrogen on earth had to be fixed by soil bacteria or electrical lightning, which breaks down nitrogen bonds in the atmosphere. This, the Kingsman piece says, was probably one of the most important inventions of the 20th century.
As is explained, the process to combine nitrogen and hydrogen gases to create fertiliser is very energy intensive as it involves immense heat and pressure, usually powered by electrcity from oil, coal or natural gas.
As Kingsman further explains:
Once humankind had acquired the power to fix nitrogen, the basis of soil fertility shifted from a total reliance on the sun’s energy to a new dependency on fossil fuel.
Through yield and acreage increases, the growth in agricultural production continues to match population growth.
And yet, much of the precious food currently produced — some 40 per cent of US corn production, 60 per cent of European rapeseed production and 50 per cent of Brazilian sugarcane — now fuels cars rather than humans.
What’s really glaring, however, is that biofuels replace only around 2 per cent of the 100m barrels of oil that the world uses.
This seems extraordinary to me.
Meanwhile, about 98 per cent of the world’s soybean production and 36 per cent of US corn production is fed to animals being bred for meat and dairy purposes.
The expected 2021/2022 deficit has been massively reduced by the fact that Indian production now looks set to beat pre-harvest estimates by around 10 per cent with total production potentially reaching a record-breaking 34m tonnes. Some analysts now expect a small global surplus for 2022/2023.
No sign of Russian coal exports being curbed at the time of writing in March 2022. ADM includes a piece from Perret Associates that predicts coal exports will continue to flow, especially to China — which is still in the processes of replacing the Australian coal it banned.
Also notable is the following point:
The EU has lost significant chunks of its heavy industry since 2000, due to spiralling electricity costs, with steel and cement producers, for instance, migrating to Eastern Europe and Asia.
Does decarbonisation in a global ecosystem count if it simply involves outsourcing pollution to countries that care less about climate goals?
ADM is both a clearer and a broker. We should not be surprised therefore that it has picked up on a fascinating trend I’ve not personally seen noted too much elsewhere.
Nasdaq’s move away from having its own servers to using Amazon Web Services and the CME’s plan to move core trading to Alphabet’s Google cloud system, will potentially render all those millions of dollars spent by HFT firms on co-location utterly redundant.
As ADMis’ Eddie Tofpik notes:
Up until now, sophisticated customers of these exchanges have sought to co-locate their own equipment as close as possible to the servers of the exchanges so as to minimise the response time and latency that are at the core business model of HFTs. This idea and process is now being turned on its head as cloud computing relies on rented access to shared computing infrastructure that is, most importantly, likely to be at multiple locations.
Apparently it’s going to take 10 years to migrate the system, so HFTs will have a little time to adapt to the new environment.
Re: Nasdaq and CME’s pivot to the cloud. I wonder how this changes HFTs: HFT firms becoming unprofitable; HFT firms choosing to specialize by location; or HFT strategy moving away from just speed, moving downstream on the chain….