June 20, 2017

By Michelle Pelletier Marshall

Arcadia Group, a global commodity trading house, primarily focused on the energy markets and headquartered in London, UK, has found a new niche in the agricultural space that has this non-traditional player starting up a risk management solutions company called Arcadia Agri. It will service small and mid-size ag clients, predominantly in emerging markets.

With the support of the Arcadia Trading Group, Arcadia Agri established operations in London and Singapore earlier this year. Initially the business will be centered around over-the-counter (OTC) risk management solution offerings to global corporate clients, but there is longer term ambition to enter physical markets in due course, said the firm.

“We are not a trader, nor a financial player. We are somewhere in between,” said Paul Bloemendal, co-head of the new agricultural commodity trading business. Bloemendal explained that they are a niche market entrant that is taking advantage of the gap created when most of the large commodity banks reduced their exposure, when compliance and regulatory changes forced people out of the market, and where some of the players just became too big to compete with. “Our platform is relatively lean and mean and we take the structured approach of managing risk versus trying to outperform by trading in a market that is continuously harder to predict,” he said.

The OTC risk management solutions focus on tier two and three agricultural commodity clients who fall into this gap but are showing huge growth potential. “We provide solutions for prospective clients to strategically hedge their market price risk exposure, find liquidity, and manage associated trade requirements so they can focus on their core business of being active in the physical commodity trade. This helps them to be competitive and to grow quickly in a profitable way,” said Bloemendal.

Bloemendal muses that servicing smaller-sized clients in such emerging countries or regions as the Black Sea, Central America, Malaysia, Indonesia, and India – locations where the big banks such as J.P. Morgan and the like are less interested in operating – leaves Arcadia Agri with limited competition. “These are clients with $10 to $15 million balance sheets that the bigger players will not touch,” said Bloemendal. “And because we have direct contact with our clients and don’t have to manage the physical commodity process, we can develop a deeper level of understanding of their business and suggest better risk solutions, providing opportunities for growth and profitability. We focus on partnerships while most others in the space focus on pure trading revenue. This sets us apart from existing service providers.”

While Bloemendal, who is based in Singapore, takes on the largely untapped markets in Asia for Arcadia Agri’s OTC risk management platform, his counterpart James Nuttal heads up the London office. Team members at both offices, albeit small right now but growing, mainly come from the physical trade but all have worked in the financial sector. With this varied experience, the company’s risk management solutions provide an overview of physical risk and derivative trading options, and are fully tailored to a specific product or flow with a set timeline.

The company services customers across the spectrum – from producers to consumers, and shippers to processors and traders – and the whole agri complex, such as grains, oilseeds, and soft commodities like sugar, cotton, coffee and cocoa, as well as regional products like palm oil or Black Sea wheat. This allows product offerings from vanilla OTC transactions (swaps) to tailored option trades through to complex OTC structures (accumulator and other optionality structures). If needed, the company can embed a full hedging program for clients around Structured Trade Finance (STF) or inventory finance requests.

“We think this is the future of commodity risk management facilitation,” said Bloemendal. “The traditional way of just trading by looking at fundamentals has been overtaken by creating a hybrid set up that looks at macro events, HF-trading, and many other directions that make it harder to predict where prices will go. Moving away from directional trading, and focusing more on processes, automation, risk management, and branding is clearly the wind blowing the market these days, which makes the timing perfect for Arcadia to offer this structured approach to our partners.”

Michelle Pelletier Marshall is the managing editor for Global AgInvesting’s quarterly GAI Gazette magazine and occasional contributor to GAI News. She can be reached at mmarshall@globalaginvesting.com.