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Commodities Exchange Markets, an Incentive for Production



Commodities Exchange
  • Commodities Exchange Markets, an Incentive for Production

Nigeria has enviable relative advantage in the areas of agriculture and solid minerals. Although we constantly create platforms for discussions on how to modernise our farming methods (be it farming for food crops, minerals and other products), not much is said about how to upgrade our trading methods from the extant spot methods.

At least 60 per cent of the population engages in one form of agricultural activity or the other, albeit mostly on a subsistence level. A nation like the United States, produces her vast agricultural wealth with less than 10 per cent of her population ploughing the fields because of the advantages of mechanised farming. Nigeria, on the other hand, still largely deploys stone-age tools for both production, storage and marketing of primary produce and consequently loses revenue to post-harvest challenges.

Mechanisation, which gives leverage to commercial farming, may not be achieved overnight in Nigeria due to its capital intensive nature, States and local governments can facilitate, in conjunction with private sector stakeholders, the emergence of standardised markets to absorb surplus harvests from farmers using tributary methods to reduce losses and encourage primary production activities, among other benefits. There is a roaring need for the emergence of more sophisticated trading systems for local commodities that make farmers confident that they can sell their produce and manufacturers confident about the quality, availability and consistency of locally sourced feedstock.

For example, 2014 figures showed that Nigeria spent about N630m (this must have doubled or tripled by now due to inflated foreign exchange rates) on importation of wheat alone. Wheat is an important crop applicable in the production of bread, pasta and pastries, in livestock feeds production and so on. The national demand for wheat continues to rise whereas indigenous production is only able to supply about 7.6 per cent of national wheat need; although this is an improvement on previous years when cultivation of wheat nearly went into extinction due to poor patronage. At the time, the millers had claimed that the quality of Nigerian wheat was inferior to the imported ones.

Today, the high cost of foreign exchange has triggered a recent acceptance of locally grown wheat by millers who now buy up whole harvests; leading to a rise in the cultivation of this emerging area of cache. The incentive is that farmers can sell what they produce. This development provides ample proof that beyond the provision of capital, inputs and other supports, market outlets are critical incentives for production. This is where the need for a commodities exchange market becomes pressing; in order to sustain the rising tide in wheat. This will also be work for our solid minerals subsector.

A commodities exchange market provides a standardised outlet for commodities, be they agricultural, solid minerals and so on. In the market, goods are graded and priced tagged such that the need for on spot trading is reduced. You do not have to see the goods and haggle before you can buy. Thus, industries can buy feedstock according to their specifications through those markets; making it easier for both the farmers and the manufacturers to remain in business. In 2014, to salvage discouragement occasioned by a period of glut when millers refused to buy, the government had to mop up wheat harvests in Zamfara State by over 100 per cent of their market value whereas the products are in demand in other parts of the country. Viable commodities bourses, with their attendant Market Information Systems, would have aided in channelling the excess produce to other parts of the country where they were needed.

An upshot of these standardised exchanges would be the emergence of derivative products that can be traded, as is done in other climes, to provide liquidity and stabilise the real sector. Thus, apart from trading in agricultural and mineral produce, contracts based on them like spot prices, forwards, futures and options on futures are traded. For example, a farmer raising wheat can sell a future contract on his produce several months ahead of the harvest time and a milling company could buy the contract ahead to ensure that the price remains the same when delivered. This protects the farmer from price drops and the buyer from price rise. Speculators and investors also trade on the futures contracts for profit ;very much like the way stocks and shares are traded in the capital market.

The importance of a commodities exchange and how it will benefit the solid minerals subsector was well captured in the aspirations of the botched 2002 National Assembly bill for the establishment of a Solid Minerals Development Commission: “The Commission shall operate Joint Venture arrangements with the Organised Private Sector, to establish a private sector-led world class Solid Minerals Commodities Exchange to pave way for the entrance of big time operators into Nigeria’s solid minerals sector in promoting quality control as well as deriving benefits for the nation, which include membership of well-established international commodities exchanges.”

No venturer wants to plough where he is not sure to reap and this has been the bane of Nigeria’s agriculture and solid minerals sectors since the excision of the marketing boards of yesteryears. Entrepreneurs, with government support, need to explore this niche area across the country to facilitate the distribution of goods, risks and profits.

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and, with over a decade experience in the global financial markets.


Top Five US Oil and Gas Firms Lost $307bn in Market Value Amid COVID-19 Crisis



Crude oil

Market Value of US Five Largest Companies Decline by $307bn in 2020

Even before the coronavirus pandemic, the oil and gas industry was faced with slumping prices. However, with a record collapse in oil demand amid the coronavirus lockdown, the COVID-19 crisis has further shaken the market, causing massive revenue and market cap drops for even the largest oil and gas companies.

According to data presented by, the top five oil and gas companies in the United States lost over $307bn in market capitalization year-over-year, a 45% plunge amid the COVID-19 crisis.

Market Cap Still Below March Levels

Global macroeconomic concerns such as the US-China trade war and the oil overproduction set significant price drops even before the coronavirus outbreak. A standoff between Russia and Saudi Arabia in the first months of 2020 sent prices even lower.

After global oil demand plunged in March, Saudi Arabia proposed a cut in oil production, but Russia refused to cooperate. Saudi Arabia responded by increasing production and cutting prices. Shortly Russia followed by doing the same, causing an over 60% drop in crude oil prices at the beginning of 2020. Although OPEC and Russia agreed to cut oil production levels to stabilize prices a few weeks later, the COVID-19 crisis already hit. Statistics show that oil prices dropped over 40% since the beginning of 2020 and are hovering around $40 a barrel.

Such a sharp fall in oil price triggered a growing wave of oil and gas bankruptcies in the United States and caused a substantial financial hit to the largest gas producers.

In September 2019, the combined market capitalization of the five largest oil and gas producers in the United States amounted to $674.2bn, revealed the Yahoo Finance data. After the Black Monday crash in March, this figure plunged by 45% to $373bn. The following months brought a slight recovery, with the combined market capitalization of the top five US gas producers rising to over $461bn in June.

However, the fourth quarter of the year witnessed a negative trend, with the combined value of their shares falling to $367bn at the beginning of this week, $6.2bn below March levels.

Exon Mobil`s Market Cap Halved in 2020, Almost $155bn Lost YoY

In August, Exxon Mobil Corporation, once the largest publicly traded company globally, was dropped from the Dow Jones industrial average after 92 years. As the largest oil and gas producer in the United States, the company has suffered the most significant market cap drop in 2020.

Statistics indicate the combined value of Exxon Mobil`s shares plunged by 52% year-over-year, falling from almost $300bn in September 2019 to $144bn at the beginning of this week.

Phillips 66, the fourth largest gas producer in the United States by market capitalization, witnessed the second-largest drop in 2020. Statistics show the company`s market cap dipped by 49.6% year-over-year, landing at $22.9bn this week.

The Yahoo Finance data revealed that EOG Resources lost over $21bn in market cap since September 2019, the third-largest drop among the top five US gas producers.

Conoco Phillips witnessed a 42% drop in market capitalization amid the COVID-19 crisis, with the combined value of shares plunging by almost $30bn year-over-year.

Statistics show Chevron witnessed the smallest market cap drop among the top five companies. At the beginning of this week, the combined value of shares of the second-largest US gas producer stood at $141.5bn, a 36.9% plunge year-over-year.

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Gold Hit 26.8% ROI YTD, the Highest Increase in Value Among Top Assets



Gold Bars

Gold Delivers 26.8% Return on Investment Year-t-Date

As the world’s earliest form of currency, gold has long been considered a reliable store of value. Unlike banknotes, stock, or other assets, the precious metal managed to preserve the investors’ wealth throughout the years, especially in times of turmoil in the financial markets.

According to data presented by AksjeBloggen, gold hit a 26.8% YTD return on investment, the highest increase in value among top assets.

Gold Return Rate 8.5% Higher than in 2019

Investors tend to focus on gold in times of market volatility, considering it to be a ‘safe haven’ in crises like the coronavirus. In 2019, the value of gold increased by 18.3%, revealed the Blackrock data. The precious metal continued the impressive performance in 2020 with a 26.8% YTD return, 8.5% more than in 2019.

Statistics show that last year, the S&P 500 index increased in value by 31% but was outperformed by Nasdaq, which grew by 35.2%. The MSCI Europe index rose by 26.1% in 2019. China A-shares followed with a 22.3% ROI.

However, the COVID-19 crisis had a massive impact on popular assets, causing a sharp fall in their values during the first half of 2020. The Blackrock data revealed the Nasdaq YTD return hit 23.9%, 11.3% below the 2019 performance. China A stocks reached 10% ROI YTD, much under the 22.3% return in 2019.

Statistics show the S&P 500 index had an 8.4% value increase in the nine months of 2020, almost four times less than in 2019. MSCI Emerging Market Index reached a 4.9% value increase in the same period, compared to 13% in 2019.

The Blackrock data show that crude oil, FTSE 100, and MSCI Europe index witnessed the most significant drop in the nine months of 2020, with their values falling by 34.6%, 22.4%, and 11.5%, respectively.

Global Demand for Investment Gold Surged by 100% YoY

Although many investors value gold as an important portfolio asset, the economic downturn caused by the COVID-19 pandemic led to a surge in global demand for the precious metal.

The World Gold Council data showed the global demand for investment gold increased significantly since the beginning of the year.

In the fourth quarter of 2019, it amounted to 279.2 metric tons. By the end of March, this figure jumped by more than 93% to 539.6 metric tons. The increasing trend continued in the second quarter of the year, with global demand for investment gold hitting 582.9 metric tons, an almost 100% jump year-over-year.

Statistics indicate the global demand for gold for investment purposes hit a record-breaking 1,152 metric tons in the first half of 2020, the highest figure so far.

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Oil Prices News: Oil Gains Following Drops in US Crude Inventories



markets energies crude oil

Oil Prices Gain Following Drops in US Crude Inventories and OPEC High Compliance Level

Global oil prices extended their 2 percent gains on Thursday after data showed U.S crude oil inventories declined last week.

The price of Brent crude oil, against which Nigerian oil is measured, gained 0.2 percent or 7 cents to $43.39 a barrel as at 12:10 pm Nigerian time. While the U.S. West Texas Intermediate (WTI) crude appreciated by 8 cent or 0.2 percent to $41.12 barrels.

Oil prices extended their three days gain after the American Petroleum Institute said the U.S crude inventories declined by 5.4 million barrels in the week ended October 9.

The report released after the market closed on Wednesday revealed that distillate stockpiles, which include diesel and heating oil, declined by 3.9 million barrels. Those stated drawdowns almost double analysts’ projections for the week.

Much of the fall is due to the effects of Hurricane Delta shuttering U.S. production in the Gulf of Mexico, and as such, will be a transitory effect,” said Jeffrey Halley, senior market analyst, Asia Pacific at OANDA.

“Therefore, I am not getting too excited that a turn of direction is upon markets, although both contracts are approaching important technical resistance regions.”

Also, the report that the Organization of the Petroleum Exporting Countries (OPEC) and its allies, referred to as OPEC+ attained 102 percent compliance level with their oil production cuts agreements bolstered global oil outlook. Suggesting that demands for the commodity are likely not growing and could drag down prices in few weeks, especially when one factor in the reopening of Libya’s Sharara oil field, workers returning to operation in Norway and the Gulf of Mexico.

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