What are the Main Challenges Facing Commodity Trading Firms?

Ever wonder what it takes to develop state-of-the-art software which helps 40bn-turn-over firms better manage risk? Quantifi has won the business of both Bunge and COFCO in recent years and we thought we'd speak to them about the decisions driving the contracts.
7 Feb, 2019

This article, featuring Avadhut Naik, Quantifi’s Head of Solutions, first appeared in Commodities People’s Comrisk Newsletter

Global commodity trading firms are faced with major challenges in terms of efficiency and cost pressures. How can Quantifi help firms manage and mitigate these?

Against a backdrop of price volatility, cost pressures and competition, commodity trading firms are experiencing challenging times. Despite this, many firms are still relying on traditional, manually intensive methods to evaluate and respond to risk. In this increasingly competitive and volatile environment, holistic credit risk management is an important component of industry best practice.

Commodity trading firms have to be prepared to respond quickly, while still planning for the future. They also need to balance the need for increased efficiency with the risk of excessive cost cutting. Quantifi is built on the latest technology and is designed to help our clients improve their risk management capabilities, enhance operational efficiencies and reduce costs.

Quantifi’s Commodity Counterparty Risk Management (CCRM) is a high performance, scalable and intuitive solution that will seamlessly integrate with a firm’s existing processes and systems. Our solution is designed to help reduce risk and operational complexity with more accurate analytics, consolidated reporting and simplified data management. Automating these processes reduces costs, improves efficiencies and allows firms to respond faster to credit events to mitigate losses.

Your Commodity Credit Risk Management Solution was built in collaboration with Bunge who we know is a leading global agribusiness and food company, how would you say this has benefited you as a company and do you feel this collaboration has helped firms manage risks effectively?

Bunge was looking for an enterprise wide credit and counterparty risk management solution to support their business across 40 countries globally. The credit risk group’s goal was to enhance their credit and counterparty risk decision making and risk management processes. By collaborating with Bunge, we benefitted from their extensive industry knowledge. This knowledge, combined with our own expertise in counterparty risk management, meant we were able to provide a solution specifically tailored to the needs of Agri businesses globally.

This collaboration resulted in a world-class credit and counterparty risk management tool that is designed to facilitate optimum business decisions, and manage counterparty risk by implementing quantitative methods and procedures across the enterprise. Counterparty risk management is critical to agribusinesses and optimization of this process has helped Bunge’s traders grow the business with greater transparency of data and automated processes.

Most commodity trading firms, across sectors, face similar credit and counterparty risk management challenges and use similar processes to monitor and control this risk. Even though the solution was developed with Bunge, it was built for the larger commodity trading industry. We are currently talking to firms in the energy and metal trading segments to address their credit and counterparty risk management needs.

“Our solution is designed to help reduce risk and operational complexity with more accurate analytics, consolidated reporting and simplified data management. Automating these processes reduces costs, improves efficiencies and allows firms to respond faster to credit events to mitigate losses.”

Avadhut Naik, Head of Solutions, Quantifi

What can you tell us about COFCO International selecting Quantifi as its commodity credit and counterparty risk management solution?

We are delighted to be working with COFCO International, one of the largest agribusiness companies. As part of its risk management strategy the COFCO International Board needed a consolidated view of exposures and risk to better manage volatility and control counterparty risk. Following an intensive selection process of six notable commodity risk platforms COFCO International selected Quantifi as its global enterprise risk solution. Quantifi demonstrated an unparalleled understanding of COFCO International’s business and an ability to deliver a proven platform with a first-class implementation.

In the dynamic marketplace in which COFCO International operates, it is more important than ever to understand counterparty risk and exposure. Our clients can leverage our expertise in counterparty risk and benefit from the advanced techniques and models we apply for measuring this. COFCO International recognised that Quantifi could help with their plans to grow into a new global force in agricultural trading.

ComRisk 2019 will be back next year. Do you see any new challenges that risk professionals will face that need to be addressed?

The global commodity markets are very volatile and commodity prices extremely sensitive to changes in the global macroeconomic landscape. The recent spike in geopolitical risk has led many commodity trading firms to more closely manage their risk exposures to help mitigate price risk. There is also an increased cost pressure on commodity trading firms. Limited investment in core systems and infrastructure has resulted in a fractured response to counterparty risk management.

Historically, firms have relied on multiple tools for counterparty credit risk management, including excel spreadsheets for exposure calculations and reporting and email to communicate credit decisions. Many agribusiness players are now seeking to adopt a more dynamic and comprehensive approach to risk management and becoming more proactive and strategic in managing their portfolio of commodity exposures. We are seeing strong demand for our solution as firms seek to work with trusted partners to develop their risk management. At Quantifi we offer market participants access to our enterprise wide solution that is intuitive to use and can be easily configured to meet client-specific needs.

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