Latest Articles by danieljohn

Effects of Price Volatility on Producers of Agricultural Commodities in Developing Countries

Fri, 22 Jun 2007 00:00:00 -0500

International prices for soft commodities are known for their volatility, which is an important concern on both a macro and micro scale. Price fluctuations for soft commodities can destabilise real exchange rates and can cause difficulties for the governments of emerging market countries in facilitating the reduction of poverty and preserve a stable economic environment. On a micro scale, we are primarily concerned about the effect of price uncertainty on the operations of producers and traders in commodities. Volatility often leads to inefficiency and impairs the efficient allocation of resources for farmers. The higher and more unpredictable the price volatility of a commodity, the greater the possibility of incurring losses or realising gains on future sales or purchases of that commodity. Moreover, the uncertainty reduces the opportunities to access credit markets and can drive farmers and producers to utilise low risk production techniques and technologies, lowering incomes and not helping economic growth and poverty alleviation.

In the past, governments of emerging market countries have responded to such uncertainties by large scale market intervention, often initiated by state enterprises such as agricultural marketing boards, and usually insulating farmers from world price shocks. However, in recent years there has been an acknowledgment that such market interventions have adverse effects. Since the global trend is towards liberalisation, protectionism which favours inefficient operators is no longer encouraged. On the other hand, liberalisation policies tend to shift the risk of price uncertainty back from governments to producers. In the face of international market fluctuations, there is a clear need for risk management mechanisms to allow producers to manage risk in the transition to a market driven commodity sector.

With liberalisation, producers have become major players in the market place and more responsive to international market conditions. The desirable use of commodity linked financial risk management instruments by commodity producers reflects the need to obtain crucial protection from uncertain adverse price movements and often to gain access to short term finance. From the perspective of bankers, traders and the providers of instruments, it is important to answer key questions such as:

How can price shock protection in a country be obtained using commodity linked risk management instruments?
Which instruments are most widely used in the markets for the principal export commodities from developing countries, and why are these instruments chosen?
Are commodity linked risk management instruments able to benefit small-scale producers by provision of a greater degree of assurance about future prices for their produce?
What share of developing countries commodity output is covered by risk management today?
In which countries is the use of commodity linked financial risk management instruments most common?
What effect has the use of these instruments had upon the operations of producers of and traders in commodities?
What is the nature and severity of the legal restraints on the use of hedging instruments by potentially important players such as producer cooperatives?

Only when these questions are answered is it possible to identify strategies to protect developing country farmers from the price risk volatility. However, many strategies for price risk management for the world’s poorest producers – particularly in Africa – seem to depend on policies promoted by development agencies, NGOs, multilaterals using models derived in the developed/industrialised world.

Recently, Day Robinson International has developed a number of models to simulate the risk management needs for producers in developing countries. These models look closely at price risk management using hedging techniques, structured trade finance, collateral management and supply chain development. For more information, contact Day Robinson International (see below for details).

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Daniel John Day-Robinson is working as a trade finance consultant from last more than a decade and with this he is the Director of Day Robinson International in UK dealing in structured trade finance, structured commodity trade finance, trade finance advice, trade conference show etc.

Source: http://www.articletrader.com

The Role of Collateral Managers in Trade Finance

Thu, 14 Jun 2007 00:00:00 -0500

Collateral management firms are becoming increasingly important within tradefinance. Collateral managers basically "look after" collateral on behalf of a lender financing goods. By using a collateral manager, the lender can make sure that goods, such as commodities, for example, are being controlled in such a way that if anything goes wrong with the loan, such as the borrower defaulting on payments, then the bank can get its hands on the goods which
are the subject of the loan, and sell them to recover monies lent. Leading international collateral management companies serve a growing international market for structured trade finance, wherein money is lent based on the value of the underlying goods, rather than on the balance sheet of the borrower.

Notwithstanding the fact that most bankers, borrowers and warehousemen say they find collateral management “just too expensive’ their desire to use the services of collateral management companies is increasing. In the absence of totally secure physical commodity storage facilities and resulting from the risks in moving commodities about, banks are obliged to find other structures for protection against physical risks. The collateral management
agreement, or CMA, offered by a number of global firms, offers one such solution.

The CMA is a tripartite arrangement between the banker, the borrower and the collateral manager and it is important to remember the CMA is a bespoke agreement. This means it can be time-consuming and expensive. The CMA is designed uniquely for each transaction and the collateral manager will bargain for fees – for the transaction itself, and for participants in the commodity system. Elsewhere in this book you can read in detail about collateral management, but the key influence collateral managers have on the system is that they:

• Oblige an understanding, through their agreements, among borrowers
of the risks faced by lenders.
• Impose a system on warehouses to comply with rigorous standards
(particularly important in developing countries).
• Manage issues of quality and provide value-added services for
quality/other considerations.
• Define, through the CMA, complex issues such as commingling and lien
over commingled goods.
• Issue non-negotiable warehouse receipts
• Impose controls through the legal discipline of the CMA
• Impose controls on-the-ground discipline as the commodity moves
through the supply chain
• Provide insurance

Some collateral managers make a play of the role of their global insurance cover. There are smaller collateral management firms who depend on this cover, possibly because their balance sheets are not large enough to provide comfort for the bank in the event of a large-scale default. The most efficient collateral managers in the developing world are those who are able to offer local services, make local decisions and sign the CMA’s without
recourse to the HQ in Europe, or elsewhere.

Collateral management is an increasingly important tool in the armoury of any trade financier. The demand for collateral management is increasing and the use CMAs is becoming an important and regular tool for the structured trade financiers right across the planet.

For more information about collateral management, CMAs or structured trade finance, contact Dan Day-Robinson at Day Robinson International in the UK.

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Daniel John, a postgraduate of London University in 1984, is the founder
of Day Robinson International which is a global consulting, conference
organizer and training provider. The company focuses on International banking with a
bent on trade finance and structured trade
finance used in the flow of international
commodities.

Source: http://www.articletrader.com

The role of commodity brokers and futures exchanges in commodity risk management

Thu, 14 Jun 2007 00:00:00 -0500

The broker is an intermediary who talks to lots of different principals (traders, producers, consumers of commodities) in the hope he will get an “order” to buy or sell goods. He takes a commission from the transaction which is deducted from the seller’s account.

Part of the value of a good broker is that he will provide not only information about prices and deals, but snippets of gossip about who is doing what – and why. Traders are always focused on supply and demand aspects of physical commodities in which they trade and as well as the larger macro-economic picture, so it is important to assess what other competitors, are doing in the market. Some brokers are providing a lot of value-added service in providing not just price information – but offering lots of ideas – on the economic backdrop, current and future price trends, etc. Whether brokers are futures brokers or deal in physical transactions, the tendency has been for many of them to become principals. Traders can be skeptical about the information given by brokers, particularly if they feel it has been influenced by the broker’s own relationship with another position taker – either inside his own group, or elsewhere. However, since brokers are largely looking to commission as a way of earning money for the company – and their own commissions, this may be a somewhat churlish position to take. Nonetheless, brokers play a key role in augmenting price transparency alongside the international and domestic commodity exchanges.

The principle role of exchanges is to regulate and control futures and derivatives trading through a membership system. Commodity futures date back to the trading of rice futures in Japan in the 1600’s – but the underlying principles of commodity futures go back a long way further. Commodity markets have been around for some thousands of years and the degree of their formality has been dependent on the political, social and economic environment prevailing at the time.

The trading of futures is relied upon these days by producers, traders and speculators, and high volumes of transactions on the major exchanges illustrate both the size of their role and the level of influence they have on the market in general. Futures markets help overcome difficult challenges faced in balancing supply and demand and exchange products. Derivatives, futures and options provide several economic benefits, including primarily the provision to mitigate the inevitable risk of price volatility. Since the 1990’s, in an environment of liberalization and following the collapse of many commodity boards in Africa, the role of exchanges has been enhanced.

The presence of exchanges and the development of futures and options markets have influenced the development of the commodity swap market. At present, although the commodity swap market is very small in comparison with the currency swap market, it is growing. For comparison, there was an amount outstanding of 598 billion US$ for commodity derivates in December 2001 by comparison with 69 trillion US$ in the interest-rate and currency swap market at the end of the same period. Most of the commodity swap transactions were for OTC contracts – about 40% according to the Bank of International Settlements.

In recent years, we have seen the growth of existing exchanges and the emergence of new ones. There are major commodity futures exchanges in over 20 countries, including Australia, Brazil, France, Germany, Japan, Korea, Singapore, US and UK. A large number of new exchanges were created during the past decade in developing countries; not all of them have progressed to the level of futures trading, and many have rapidly disappeared again.

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Daniel John Day-Robinson is working as a trade finance consultant from last more than a decade and with this he is the Director of Day Robinson International
in UK dealing in structured trade finance, structured commodity trade finance,
trade finance advice, trade conference show etc.

Source: http://www.articletrader.com

Let’s Play- The Google Sandbox beckons The Sandbox?

Tue, 29 May 2007 00:00:00 -0500

The sandbox can be defined as a virtual space where your website lies on a temporary hold or probation for some time before it receives a good ranking in the search engine results pages. One thing to keep in mind is that though new websites receive a good ranking and visibility in Google’s SERPS for a couple of weeks after being indexed by Google, this does not last. Instead, their ranking starts touching lows after this initial period is over in spite of having original and optimized content and also having genuine inbound links to one’s website.

Stated more simply, the sandbox acts as a filter which lists your website but does not rank it well for the initial few months. Since almost all new websites are sandboxed, experts do give us some warnings. They say that the more usage of competitive keywords on your site, the more the probability that your website will be sandboxed for a longer duration. Another thing to remember is that a sandboxed site is indexed by Google but is not well ranked for keyword phrases.

Watch out!
Not only are new websites sandboxed, even well established sites that receive various links from other websites all at once are also likely to experience sandboxed. The reason why this is done is because Google discovered that spammers actually divide a single site into fragments so that they can facilitate the exchange of links. Thus, they also create new websites deigned with the intention of providing valuable links to the other websites.

So, what is the need for a sandbox?
Google felt that a website filter was an important requirement so that they could keep search engine spammers away. How did they realize this? Actually search engine spammers were able to crack Google’s algorithm and started using it for their own advantage. Spammers created websites that were not up to Google’s standards but, still managed to get top listing. This was because of the usage of keywords, inbound links and use of anchor text.
Even though Google would discover these websites and ban them, it was still conducive for the spammers. Even though they received the top ranking of Google for a short time, the visiting traffic to their websites during this time more than compensated the spammers for the cost of building these sites in the first place. We need to remember that Google never admits the sandbox exists, but webmasters confirm that new websites new definitely sandboxed for the initial months.

Escaping the sandbox
No matter how much one wants to find a solution, the only way to get out of the sandbox is to wait for the probation period to end. However, one can use this time constructively by improving one’s website so that it works for one’s advantage. One way to so is by including content that is unique and increasing the number of affiliations through inbound links to your website. Stop focusing on search engine traffic only and work on other aspects that exist.

So, am I in the Sandbox?
One can know this through the simple process of elimination. Firstly, you need to make sure that you get rid of the possibility that Google will ban your website. If this is done and your ranking with Google is still low, then you need to make sure that the possibility of being sandboxed because of high usage of competitive words is also eliminated. If in spite of all precautions, your ranking remains low then the chances are that you have been sandboxed. Also, if other search engines rank your website well and you don’t get a good ranking with Google, again it would confirm that you may be sandboxed. So, play the game and win.

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Michael Henderson, a proffessional web designer and SEO expert. He has worked on many projects for the world wide web design company in India and Overseas. His experience & understanding of web technologies, web applications, search engines & WWW standards made him act as consultant for clients for proposing optimal web based solution to back there business needs and an adviser for web developers & web designers for developing pages which meet W3C standards in all respects.

Source: http://www.articletrader.com

WWW vs. Non-WWW- What does it all mean?

Tue, 29 May 2007 00:00:00 -0500

Most people know that one can link one’s site with www or non www versions. This simply means that when one tries to open a site with http://www.Mycompany.com or http://Mycompany.com, both will open up your site. Simple? Maybe from the point of view of the user, however, search engines will treat your website differently if web pages link to www or non www versions. This is because, the way you type out the information will point to different destination, thus making search engines treat one URL as real and inbound and links on the other URL may not be counted. The formal name for this phenomenon in the search engine industry is Canonical URL Issue.

What should one do?
When the Canonical URL Issue arises, it results in a decrease in link popularity as search engines consider them as two separate URL’s and thus counts link popularity separately for both. See the Google PR of your pages with www and non www version to identify different PR for both versions. To prevent this, one should select the same form for the URL for inbound as well as internal linking. Stay consistent with your URL structure when you begin setting up your links and also ensure that all incoming links are pointed to the same form of your URL. In addition, follow the same structure within your own website. Also, ensure that your own internal links on your website are linked to the same URL as your inbound links.

What you need to remember?
Technically, there is no difference for search engines for using www or non www versions. Users approach the same with different points of view such as that with the www version, four more characters need to be typed. Others believe that all user’s type www first while attempting to browse the net. Keep in mind that many directories require www in the site location. It becomes simpler to use www as it is very common and most people get confused if you have a domain without www. No matter which choice you make, www or non www, consistency needs to maintained as far as internal linking is concerned.

What is the next step?
First check and ensure that both Mycompany.com and www.Mycompany.com are consolidated into one site instead of two. Remember that showing your content under two different URL’s will never be good for your company. Begin by finding out the Page Rank of each version and then choose the version that has higher PR since it is more frequently linked by other websites. Adopt 301 redirect so that you do not have two versions of your site available. This will change your ranking more positively as there will no longer exist a split on your site due to two sets of URLs thus giving you more power. Be patient, if you do not see the effect very soon, remember that search engines take time in whole updates of the web. Be patient and you will bear the fruits! 301 redirection can be made in many ways but the most popular method seems to be to either use .htaccess file or set on the server. You can set up your server with the right default host name when you do so or have your host do it for you. Configuration makes the difference, if the web server is not configured to have the proper default (www or non www) it would result in so many redirects that will result in an increase in time to load the site.

Redirection explained!
When you provide a redirect, users will naturally link to using the one that you desire to be used. To double ensure this, make sure that all of your internal links result with the correct link as wished by you. Consistent URL links of your site will force search engines to index the real URL. Also, since users will be linked to the URL structure you want, this will have various consequences. Firstly, this will result into saving of leakage of Page Rank. Most importantly, this will result to an increase in link popularity to improve your search engine ranking. Since the goal of each web site owner is to increase traffic to their website, the ultimate goal will be achieved fruitfully.

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Source: http://www.articletrader.com

Importance of Trade Finance & Structured Trade Finance for Importers and Exporters of Commodities?

Mon, 28 May 2007 00:00:00 -0500

Trade finance is the method importers and exporters of commodities and goods use to finance their business. Basically, trade finance has been in existence for many thousands of years - and one can trace the roots of trade finance and structured trade finance right back to the early days of China and the silk route, Mesopotamia and Europe. Trade Finance was around long before Europeans settled in America and long before the world’s stock markets were born!
Today, trade finance is a massive, multi-billion dollar business. As the world trades more and more goods and commodities are bought and sold, so more and more banks and financiers are needed to lend money to finance the purchase and sale of these goods and commodities - right across the global supply chain.

How is trade finance and structured trade finance useful?

Take an example: imagine you are a trader in cocoa beans in Cote d’Ivoire, buying beans locally and selling them to foreign buyers. To make your purchases, you will need to have money to buy the cocoa up-country in Africa, prior to their export. Where will you find money to make these purchases? And supposing you are the international buyer; the shipper, purchasing from cocoa traders all over West Africa - how will you finance your transactions, which at any one time may exceed your cash reserves? What might be supported by your bank who, if they are traditional lenders, will only lend against your balance sheet?
This is where trade finance and structured trade finance is useful – your business can grow and develop if you use the services of a specialist trade finance department who will structure trade finance structures can be tailored to your needs, using the collateral of the goods you are trading, rather than your own balance sheet or other assets.

What is the basis of trade finance and structured trade finance?

Goods and commodities have an underlying value of their own. For example, if cocoa beans are worth many hundreds or even thousands of dollars per tonne, then once a big pile of beans is accumulated in one place; in a warehouse or on a ship, it is worth a lot of money. A bank may lend money against the total value of the beans, minus some amount to take account of price and other risks
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It is the same for every commodity or trade good which is resalable. A bank will make a loan as long as the collateral “adds up” and as long as the bank is comfortable with the way the deal is structured between both the buyer and the seller. Of key importance is that if something goes wrong the bank is able to take possession of the commodities or goods and sell them to realise monies to repay any loan amounts outstanding.
Basically, when we talk of structured trade finance we are talking of deals whereby complex arrangements are put in place to ensure a bank can take possession and sell the underlying capital used for the loan; in this example, the goods and commodities themselves.

Is trade finance complicated?

No. It is a simple business although the structures used in trade finance in more complex deals require a lot of work for all of the parties involved. This is why the total loan amount of a structured trade finance loans must be high enough to warrant the involvement of highly-paid bankers, lawyers and other advisers.

Where can I find out more about trade finance and structured trade finance?

Day Robinson Group has offices in London and New Delhi and is one of the world’s foremost providers of training in the trade finance sector. For more information, you can visit our site at: http:///www.dayrobinson.com or you can contact the author of this article, Dan Day-Robinson at Day Robinson International in the UK (ddr@dayrobinson.com).

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Daniel John Day-Robinson is working as a trade finance consultant from last
more than a decade and with this he is the Director of Day Robinson International
in UK dealing in structured trade finance, structured commodity trade finance,
trade finance advice, trade conference show etc.

Source: http://www.articletrader.com

About Warehouse Receipts Finance

Mon, 28 May 2007 00:00:00 -0500

Warehouse receipts are a crucial element for risk mitigation, enabling a financier to lend to a borrower, who wants to finance the shipment of commodities for sale or purchase. Using warehouse receipt finance, a bank, or trader, relies on goods in an independently controlled warehouse to secure financing. Usually providing (among many things) there is an off-taker and that there are other forms of recourse (the borrower?s balance sheet for example) banks will lend against commodities stored in a reliable warehouse and which have been properly pledged to them in a sound legislative environment. So warehouse receipts provide for a degree of physical risk mitigation and, in support of an exchange-based trading system, they are important for underpinning futures.

Accordingly, warehouse operators can act as key influencers of risk management. If they are able to issue warehouse receipts, which can be used as collateral by banks, they may use this as a way of encouraging deliverers of commodities to move stocks into their facilities. Warehouse operators receive goods into the warehouse and issue ?receipts? showing the goods have been received into the store. Among other things, the receipts themselves contain information about the quality and type of the commodity taken into store. The receipts are for the information of the depositor of the goods or, if he is a borrower, for his bank. However, these receipts are not negotiable documents of title, i.e. the title to the goods themselves may not transfer from one to another person via the passing of the related warehouse receipt.

Herein lies the potential for some degree of confusion. The term ?warehouse receipt? means different things to different groups of people around the planet. For example, in the United States, the term ?warehouse receipt? is used for a document evidencing storage of a commodity in a warehouse. Unlike elsewhere, it is a document of title, supported by legislation; in this case the US Warehouse Receipts Act of 2000, which replaced a piece of legislation enacted in the US in 1916. By contrast, in the United Kingdom a warehouse receipt is a non-negotiable instrument simply notifying that at a certain moment in time a certain amount and quality of a commodity was delivered into a warehouse. In the UK, a negotiable form is represented by a warehouse ?warrant? of the type issued by London Metal Exchange-nominated warehouses.

The main advantages of warehouse receipt financing from a risk management perspective are:

The identity of the collateral is less contestable and the intention of the borrower to pledge it is clear, avoiding ownership disputes and competing claims.

The collateral can be auctioned or sold promptly and at low cost if there is a loan default

A lender holding a warehouse receipt can claim against the issuer (the warehouse company) as well as the borrower in the event that the collateral goes missing

In a bankruptcy scenario a document of title can cut off the claims of competing creditors.

Warehouse receipts can be negotiable or non-negotiable. A non-negotiable warehouse receipt is made out to a specific party (a person or an institution). Only this party may authorize release of goods from the warehouse. He may also transfer or assign the goods to another party, for example a bank. The warehouse company must be so notified by the transferor before the transfer or assignment becomes effective.

The non-negotiable warehouse receipt in itself does not convey title and, if it is in the name of, for example, a trading firm, it needs to be issued in the name of or transferred to the bank in order for the bank to obtain more than just a security interest. A security interest is much less attractive to a bank than if it has what is called possessory collateral, i.e. it has direct recourse to the warehouse where the goods are stored and in the event of a default or similar, it is easy for the bank to sell the commodities in a shorter time frame.

Issuers of non-negotiable warehouse receipts include collateral managers. They are becoming increasingly important, with companies like ACE, Cotecna, Control Union, Drum and SGS rolling out collateral management products to serve a growing international market. Notwithstanding the fact that most bankers, borrowers and warehousemen say they find collateral management ?just too expensive? their desire to use the services of collateral management companies is increasing. In the absence of totally secure physical commodity storage facilities and resulting from the risks in moving commodities about, banks are obliged to find other structures for protection against physical risks. The collateral management agreement, or CMA, offered by a number of global firms, offers one such solution.

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Dan Day Robinson, a postgraduate of London University in 1984, is the founder
of Day Robinson International which is a global consulting, conference
organizer and training provider. The company focuses on International banking with a
bent on trade finance and structured trade
finance used in the flow of international
commodities.

Source: http://www.articletrader.com