The role of market intelligence in managing risk

Understand what the market intelligence area does, how it works and how important it is for managing risks in the commodities market.

20 de Deciembre de 2023

hEDGEpoint Global Markets

The principle of a market intelligence team is to provide the best information as quickly as possible. In this way, it contributes to making risk management decision-making more effective.

Market intelligence analysts have a natural curiosity and problem-solving orientation. To this end, they work with the support of statistical modeling and monitoring the main market events in real time.

Did you know that hEDGEpoint has an area dedicated to market intelligence? Our team is the benchmark for monitoring the main movements and trends impacting the agricultural commodities and energy markets.

When it comes to commodity hedging, we can count on our professionals. We offer timely market updates and analysis reports in order to contribute to our clients’ decision-making. In addition, we work throughout the commodity chain.

Do you want to better understand how our market intelligence works in practice and what its real importance is? Read on and find out!

Market intelligence: what is it and how does it work?

hEDGEpoint’s market intelligence department is responsible for analyzing the behavior and trends of agricultural and energy commodities. The team has a robust knowledge of the main market fundamentals and their connection to price trends.

Thus, factors that make up and affect the supply and demand balance of each commodity are closely monitored. It also assesses how this context is reflected in the reality of the most diverse agents in this market.

“We are responsible for providing data and facts that indicate the current situation of each commodity, as well as prospects. In this way, we can provide valuable information for those who use hedging instruments,” explains Thais Italiani, Market Intelligence Manager at hEDGEpoint.

What methodology does hEDGEpoint use for its crop projections for the agricultural commodities market?

Our projections are based on robust analysis and statistical modeling that considers the fundamentals of each market. In addition, we hire specialized crop tour services when necessary. They therefore explore issues such as:

  • The evolution of the area under production;
  • Monitoring productivity and climate data;
  • Relevant events.

In relation to this last factor, the commodities market often also has a political and macroeconomic character. Both are difficult to capture with modeling, but extremely necessary to monitor.

As an example, we can cite groups such as OPEP+, which have a major influence on oil prices. Monitoring their decisions is therefore just as important as understanding and estimating the bloc’s production capacity.

In this context, how does market intelligence work?

The way market intelligence works starts with supply considerations. For example, take soybeans. The intelligence sector analyzes issues related to the area planted, yield trends, differences between producing regions, and the climate.

The agronomic cycle of the plants is also checked, including aspects such as light, humidity, and temperature.

“We also monitor the progress of planting and harvesting, pointing out the ideal window and how much was planted during that period. The soil preparation conditions and the purchase of inputs are other factors we check,” adds Italiani.

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Demand is also analyzed. Continuing with our soybean example, market intelligence closely follows the oil, chicken, hog, and biofuel industries. They can all demand this grain, and it is necessary to monitor them.

Another example we can give is the coffee market. To estimate the potential of the harvest, we start from two scenarios: the area can grow according to the trend or follow the average growth of positive biennial years. For productivity, we modeled the bags/ha metric against the average NDVI for each region.

Within all commodity markets, we also consider the global context. Not only specific to your market, based on the interaction between its various participants but also external factors linked to the macroeconomy.

An example of this is the moves by central banks to combat inflation by raising interest rates. This action directly affects the perception of risk and the positioning of participants concerning commodities.

Macroeconomic aspects influence the performance of market intelligence

Knowing that political and economic decisions lead to changes in the risk perception of market participants, monitoring the global macroeconomic context becomes essential. Geopolitical conflicts and trade wars can trigger not only complex changes in production chains, but also in trade flows.

Thus, the monitoring of exports and imports transcends its fundamentalist nature and is intrinsically part of the relationship between market participants. Speculators take advantage of moments of trend change, and increased volatility caused by policy changes, conflicts, or even climatic events.

Understanding the positioning of the most diverse players on the stock exchange becomes an essential part of understanding the behavior of future prices: where is the money?

“We need to monitor the context of risk aversion and impacts on the dollar, always keeping an eye on interest rates and inflation in the main producing and buying countries. In short, various factors affect the appetite for a given commodity,” says Thais.

Understanding the global to the local market.

Understanding the global market and how external factors can lead to changes in the prices of each commodity is only part of the challenge. Monitoring the physical market more closely is another challenge.

In this sense, it is essential to trace the relationship between the premiums paid for quality and the different values in the commodity’s main consumer markets. This adds even more complexity to market intelligence work.

In addition to all this, there are also logistical issues, such as port capacity and freight costs. In short, these are multifactorial variables that must be interpreted by market intelligence.
“Most of the composition of prices are recurring factors in each cycle. Once we can check supply, demand, and all the variables, we can identify which way they are pointing,” he concludes.

How important is market intelligence for commodities players?

One of the great advantages of market intelligence is that it allows us to act with a global outlook, connecting different sectors.

A dedicated market intelligence team is crucial in understanding and navigating the complex landscape of agricultural and energy commodity risk management. Get to know our team and the commodities they work with.

The volatile nature of these markets requires continuous and in-depth analysis to anticipate changes in conditions that can significantly affect the commodities chain. We therefore closely monitor the economic, political, and climatic factors that directly impact the production and distribution of agricultural and energy commodities.

In this sense, the market intelligence team can identify emerging patterns, mitigate risks, and point out strategic opportunities.

In addition, the regular production of reports with updates and trend analyses provides a solid basis for informed decision-making. In addition, we provide a monthly forum for live interaction in our Market Calls via our hEDGEpoint HUB platform. In this way, our clients can proactively adapt to changes in the business environment.

Our Market Intelligence team acts as a strategic compass, providing relevant information to our sales team and our clients. hEDGEpoint’s highly specialized professionals go beyond generic market knowledge.

They delve into the specific details of each sector to understand nuances that might go unnoticed in generalist analyses. This specialization enables the team to offer qualified and contextualized insights, which represents a strategic advantage for companies looking to anticipate changes in the commodities markets, not just react to them.

hEDGEpoint: market intelligence for risk management

You may have noticed the importance of market intelligence for commodities players, right? This area is essential for effective risk management.

If you’re looking for information and well-founded reports to help you make decisions, it’s time you got to know hEDGEpoint HUB. On our exclusive platform, you can register to access the materials produced by our Market Intelligence team. Access it now!










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