What are Soft Commodities?
Soft commodities refer to commodities that are grown, rather than mined. Occasionally, the term soft is given to commodities which are identified as being grown primarily in tropical climates.
Weather can play a major role in the soft commodity market. Very warm summers and cold winters can affect crop production which makes it nearly impossible to foresee which way prices will be driven. Rising and falling prices can have a direct impact upon the profit margins of importers, distributors, food retailers, food producers and manufacturing.
Physical soft commodity trading includes many soft commodities and their derivatives and variants:
- Coffee trading
- Cocoa (Cacao) trading
- Sugar trading
- Dairy trading
- Cotton trading
- Rubber trading
- Fruit (and juice) trading
- Meat trading
- Fish trading
We have an extensive network within the soft commodities industry with traders, sales/account managers, shipping and traffic operators, analysts etc. Our soft commodities team covers assignments across the world; Europe, Asia, Middle East, Americas and Africa. Recently, we have assisted with the following hires (see our vacancies):
- Soft Commodities Trader, Netherlands
- Head of Sugar Sales, Dubai
- Sugar Trader, USA
- Soft Commodities Logistic Manager, Singapore
- Coffee & Cocoa Trader, East Africa
- Specialty Coffee Trader, USA
- Coffee Volatility Options Trader, Dubai
- Dairy Trader, Singapore
- Dairy Trader, Netherlands
How are Soft Commodities Traded?
On the physical market, soft commodities trading involves growing and selling the commodity in its original form or after going through primary processing.
Traders specialise in a specific soft commodity as well as specific key markets that they are responsible for purchasing from and selling to. To ensure increased company revenue they must conduct regular market research and assess trade processes. A soft commodity trader must negotiate sales and purchase contracts (spot) to achieve maximum business profit.
Physical soft commodities can also be traded using financial instruments (derivatives). While many derivative products are available, it is mainly futures contracts that are used in soft commodity trading. Futures contracts are used by producers to lock in the futures prices of their crops and by speculative traders looking to make a profit.
The Different Soft Commodities Traded
Coffee is a major export commodity it is one of the most traded soft commodities in the world. In value, it is the largest export in the world second only to oil. Coffee requires a subtropical climate to grow, typically within 1,000 miles of the equator. Of the world’s coffee exports, 30% is produced in Brazil.
The most traded types of coffee are Arabica, Robusta and green (milled beans). Arabica coffee seeds are cultivated in Latin America (LATAM) and Eastern Africa and makes up the bulk of the world’s coffee production. Robusta coffee seeds are produced at lower altitudes in the tropical areas of Asia and Africa.
Cocoa is grown in humid, tropical climates, in a zone 20° to the north and south of the equator. The main producers are located in West Africa (more information), Indonesia, Brazil, Nigeria, and Ecuador.
Cacao beans grown are typically one of the three major varieties, Forastero, Criollo or Trinitario. The bean is the purest form of chocolate you can eat but they are typically processed before consumption.
Cacao derivatives include cocoa butter, a natural fat that is taken from cocoa beans and used in the production of confectionery and cosmetics; cocoa powder, used as an ingredient in foodstuffs and cocoa liquor, used in chocolate manufacturing.
Sugar is produced from processing sugar cane or sugar beets. Sugar cane grows best in tropical areas whereas sugar beet is produced in temperate zones. Of sugar cane, Brazil is largest producer and exporter in the world. The largest importers are China, the USA, Malaysia and the European Union.
Raw sugar is the raw product extracted from the sugar cane or sugar beet. Once harvested, cane or beet is crushed to extract juice known as raw juice. White sugar (refined sugar) is the purified form of sugar. It is made through the removal of impurities and is the product most likely to be used by consumers.
Cotton is a soft commodity in high demand for its use in clothing and other textile products. Trading is focused on the integrated origination and distribution of all grades and varieties of cotton, including short staple, upland, long staple and pima cottons. The three top cotton producing countries are China, India and the USA. These three countries alone are responsible for 50% of the world’s cotton use.
Dairy trading includes cheese and milk products. Dairy encompasses types of food produced from or containing the milk of animals, principally from cattle and but also includes sheep, water buffaloes and camels. Dairy products include food items like milk powders, yogurt, cheese, and butter. The dairy market can be unpredictable; factors which can affect milk prices include droughts, import restrictions, and overall fluctuations in supply and demand.
Most natural rubber is used in applications such as tyres and tubes for automobiles but is used extensively in many products for its resilience, large stretch ratio and waterproof qualities. Rubber is harvested in the form of latex from rubber trees, principally the hevea basiliensis variety, before being refined in to rubber. The largest rubber exporters are based in Asia and include Thailand, Indonesia, Vietnam and Malaysia.
Fruit (and juice) trading
Edible fruits are a valuable source of food in the human diet and are the seed-bearing structures found in flowering plants. The types of fruit traded are wide ranging and include apples, bananas, grapes, olives, pears, pineapples, lemons, kiwifruit and avocados. Fruit is traded and produced globally as different climates and conditions yield different varieties. Some of the principal producers, however, include India, China and Turkey.
Physical meat trading includes beef, pork, chicken, sheep meat (lamb and mutton), goat and offal. Livestock is raised and prepared for the preparation of human consumption and the meat is then processed and packaged to be sold to the retailers and final consumers. The USA and China are among the top producers of meat as well as Brazil, Australia and India.
The term fish can also include shellfish such as molluscs (mussels, clams, scallops), crustaceans (crabs, lobsters, crayfish, shrimp) and echinoderms (sea urchins, sea cucumbers). Countries responsible for exporting the most fish and seafood include China, Norway, Vietnam, the USA, India, Canada, Chile and Sweden.