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The Hidden Plumbing of Commodity Finance | Odd Lots

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We talk about the commodity supply chain all the time. We talk about the ports and the trucks and the ships and all of that. But there's another dimension to moving commodities all around the world, which is actually paying for it. Who funds the oil tanker and what happens when that tanker is, say, stuck in the Strait of Hormuz? Commodity finance underpins production, transportation and storage of a wide variety of the things that make the modern world, but you tend to only hear about it when things go wrong. Today we speak with Lewis Hart, head of corporate advisory and banking at Brown Brothers Harriman. We discuss how the business of commodity finance actually works, how risk is priced, what makes for a good or bad warehouse, and the difference between financing a commodity you can hedge (like oil) versus one where there's no futures market (like cashews).

Chapters:
00:00:00 - Cold Open
00:04:04 - Guest Introduction: Lewis Hart
00:08:43 - Price Risk and Hedging Mechanisms
00:12:42 - Due Diligence and Risk Assessment
00:14:29 - Market Structure and Bank Participation
00:17:30 - Collateral Tracking and Documentation
00:19:26 - Strait of Hormuz Crisis Impact
00:25:03 - Crisis Management and Contract Terms
00:28:18 - Non-Hedgeable Commodities
00:33:42 - Futures Market Development
00:36:10 - Market Intelligence and Trends
00:40:50 - New Trade Routes and Adaptations
00:42:10 - Final Thoughts
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7 Comments

@johnstimpson9622 4 months ago

Lewis's explanation of Commodity Finance is succinct and insightful. Cashew nuts to Copper.

@jamesphelps1958 2 months ago

It’s crazy to me that the 5 Cs of credit is so universal considering it came from Citigroup’s internal credit policy and training.

I guess they were the most important bank in the world for a long time and a lot of people went through there

@roarkmulligan1485 4 months ago

Good explanation! I thought The Merchant of Venice might have been mentioned.

@driziiD 10 days ago

27:54 cashews

@mustavogaia2655 4 months ago

there is no onion futures due to some cornering (market manipulation) that resulted in banishing that contract.

@Watchesnchess 4 months ago

Macadamia’s grown in Australia. Shelled in Asia, re-exported to Australia!. I wont buy them (I live in Australia)

@mohamadqaddoura6226 4 months ago

I don't know who to believe these days. If The author of 'Principles' and the founder of the world's largest hedge fund—who hops from one channel to another playing the role of a preacher and advisor—is himself the most deceitful, thieving, and morally corrupt person in history, in every sense of the word, and adheres to no principles whatsoever. He indirectly stole trades from me personally, trades that should have generated a billion and a third in profits for me, not to mention the wasted time and effort. This is to say nothing of the fact that he is practically a fool, quite the opposite of what he promotes, yet he moves freely between channels and media outlets as he pleases. Therefore, I apologize, because I will not believe or trust any news anymore, no matter how small. When I say he is a thief, a robber, and a swindler, that means he is a thief, a swindler, and a robber. And everyone knows who I'm talking about.