Creating Clarity in a Complex Environment

Whether it was the advent of computer-based trading, which replaced the need for phone-based trading in the early 2000s, or the more recent onset of regulation as a result of the 2008 financial crisis, adapting to change is a constant for the futures industry. The futures market is a central financial exchange where people can trade standardized contracts to buy specific quantities of a commodity or financial instrument at a specified price with delivery set at a specified time in the future.

As a purchaser, processor and seller of physical commodities worldwide, Cargill has long managed its commodity risk on global futures markets. But in 2006, responding to an increasingly demanding and fast-paced trading environment, Cargill decided to rethink its approach to futures trading. Before that time, 40 Cargill businesses each conducted futures transactions independently with in-house and external financial institutions. This led to plenty of duplication, redundant broker rates, exchange fees and financing inefficiencies. Not only were some businesses paying higher fees than others, many were experiencing major operational problems.

To improve Cargill’s overall approach to futures trading, the company created the Derivatives Execution and Clearing Group, a single entity that consolidated Cargill’s dealings with financial institutions and leveraged Cargill’s size. Financial institutions responded positively, offering better rates and financing solutions and standardized fees, which helped Cargill strategically align its infrastructure, operations and documentation. Cargill now attributes hundreds of millions of dollars in savings to the “one futures platform” approach.

The savings generated from the streamlined and simplified approach have also benefitted Cargill’s business partners, all along supply chains. Whether it is the commodity producers whom Cargill represents on the trading floor or the financial institutions that now deal with one entity instead of many, the Derivatives Execution and Clearing Group has allowed Cargill to maintain its overall effectiveness as a business partner.