Post by Trade facilitator on Jan 8, 2021 14:58:51 GMT 1
How Nigerian Small Scale Exporters and Farmers Will Benefit From Commodity Markets and Exchanges in 2021 – Module 1
We have touched on the good news of the emergence of the Gezawa Commodity Market and Exchange (GCMX) in Kano state Nigeria. It was heartwarming news as the Commodities Exchange is billed to officially take off in the first quarter of 2021.
There are other Commodities Exchange Markets already in Nigeria, so it means that they have been in our country. Many small scale commodity traders and exporters are not aware that such facilities exist for them to explore and exploit.
Others are:
Lagos Commodities and Futures Exchange (LCFE)
Nigeria Commodity Exchange (NCX)
Abuja Securities and Commodities Exchange (ASCE)
AFEX Commodities Exchange (The first private sector Commodities Exchange)
This article will be down to earth in bringing the knowledge of the workings of the Commodities Trading and Exchange Organizations to the small scale farmers and exporters. Every farmer and exporter needs to be aware of their existence and how to make use of them to better our economy and improve our businesses.
What Are Commodity Exchanges? A small scale farmer in Abeokuta in Ogun state or Warri in Delta state will like to know what Commodity Exchanges mean. It is important that you as a farmer or exporter take your time to really and fully understand the meaning. A commodity Exchange is an organized, regulated market that facilitates the purchase and sale of standardized contracts whose values are tied to the price of commodities. The commodities can be crude oil, rice, corn, sesame seed, or gold.
Commodity Exchanges are very important in any economy because they connect global economies to the local one as they provide an organized market place for the exchange of various commodities. To understand the operations well, you need to know the meaning of commodities as a term used in the exchange. The commodities here must be marketable goods and raw materials usually traded in bulk. We can classify them into the following groups:
Agricultural Commodities (wheat, corn, cocoa, etc.)
Livestock and Meat (chicken, cattle, etc.)
Metals (gold, silver, copper, etc.)
Energy (petroleum, crude oil, etc.)
It is extremely important to understand what commodities mean: the main characteristic of commodities is that they are interchangeable with other goods from the same group. In addition, the commodities are uniform in their quality. There should not be any noticeable difference between the qualities from different producers. For example, there should not be any difference between the wheat produced by farmer A and that produced by farmer B at the exchange.
You can see the meaning of the term standardized. It means that commodities sold on the exchange are of the same top quality. If there is a noticeable difference then there is no standardization. This quality of standardization makes it possible for the commodities to be easily transferable or interchangeable with other similar commodities. The raw materials of the same group must be able to be interchanged with other goods in the same group.
Let us also look at the meaning of standardized contracts as we agree that a commodity exchange is an organized, regulated market that facilitates the purchase and sale of standardized contracts whose values are tied to the price of commodities. Therefore what it means is that the buyers are buying contracts, and they agree to accept delivery of a commodity, and the sellers agree to deliver the commodity.
Then what are standardized contracts? The Commodities Exchanges spell out the following standardized features of every contract:
Standard Quantity
Standard Quality
Minimum Price
Standardized Delivery
Now, let us take them one after the order. We are spending time to break these terms down so that everybody who will participate in this business understands what he or she is going into from the first day. The reason why many of our exporters fail is that they do not understand what they were going into properly from the first day.
What does Standard quantity mean? This is the amount of the commodity stated in the contract. It can be expressed in metric units – metric tons, imperial units – pounds weight, or in barrels and bags.
Standard quality also shows the features of the commodity being traded in the contract. Maybe that the commodity must have certain characteristics – the sesame seed must come from Benue or that it must be brown in color.
What of the Minimum Price? Exchanges can set up the minimum price increments at which a commodity can trade. Exchanges do not determine the prices for commodities, rather traders and member companies determine the commodity prices through a mechanism known as price discovery. It is the price at which supply and demand meet.
Then we come to Standardized Delivery. The exchanges state clearly the delivery, method of delivery, and place of delivery for each contract signed.
We will continue this journey in module – 2. Stay with us.
We have touched on the good news of the emergence of the Gezawa Commodity Market and Exchange (GCMX) in Kano state Nigeria. It was heartwarming news as the Commodities Exchange is billed to officially take off in the first quarter of 2021.
There are other Commodities Exchange Markets already in Nigeria, so it means that they have been in our country. Many small scale commodity traders and exporters are not aware that such facilities exist for them to explore and exploit.
Others are:
Lagos Commodities and Futures Exchange (LCFE)
Nigeria Commodity Exchange (NCX)
Abuja Securities and Commodities Exchange (ASCE)
AFEX Commodities Exchange (The first private sector Commodities Exchange)
This article will be down to earth in bringing the knowledge of the workings of the Commodities Trading and Exchange Organizations to the small scale farmers and exporters. Every farmer and exporter needs to be aware of their existence and how to make use of them to better our economy and improve our businesses.
What Are Commodity Exchanges? A small scale farmer in Abeokuta in Ogun state or Warri in Delta state will like to know what Commodity Exchanges mean. It is important that you as a farmer or exporter take your time to really and fully understand the meaning. A commodity Exchange is an organized, regulated market that facilitates the purchase and sale of standardized contracts whose values are tied to the price of commodities. The commodities can be crude oil, rice, corn, sesame seed, or gold.
Commodity Exchanges are very important in any economy because they connect global economies to the local one as they provide an organized market place for the exchange of various commodities. To understand the operations well, you need to know the meaning of commodities as a term used in the exchange. The commodities here must be marketable goods and raw materials usually traded in bulk. We can classify them into the following groups:
Agricultural Commodities (wheat, corn, cocoa, etc.)
Livestock and Meat (chicken, cattle, etc.)
Metals (gold, silver, copper, etc.)
Energy (petroleum, crude oil, etc.)
It is extremely important to understand what commodities mean: the main characteristic of commodities is that they are interchangeable with other goods from the same group. In addition, the commodities are uniform in their quality. There should not be any noticeable difference between the qualities from different producers. For example, there should not be any difference between the wheat produced by farmer A and that produced by farmer B at the exchange.
You can see the meaning of the term standardized. It means that commodities sold on the exchange are of the same top quality. If there is a noticeable difference then there is no standardization. This quality of standardization makes it possible for the commodities to be easily transferable or interchangeable with other similar commodities. The raw materials of the same group must be able to be interchanged with other goods in the same group.
Let us also look at the meaning of standardized contracts as we agree that a commodity exchange is an organized, regulated market that facilitates the purchase and sale of standardized contracts whose values are tied to the price of commodities. Therefore what it means is that the buyers are buying contracts, and they agree to accept delivery of a commodity, and the sellers agree to deliver the commodity.
Then what are standardized contracts? The Commodities Exchanges spell out the following standardized features of every contract:
Standard Quantity
Standard Quality
Minimum Price
Standardized Delivery
Now, let us take them one after the order. We are spending time to break these terms down so that everybody who will participate in this business understands what he or she is going into from the first day. The reason why many of our exporters fail is that they do not understand what they were going into properly from the first day.
What does Standard quantity mean? This is the amount of the commodity stated in the contract. It can be expressed in metric units – metric tons, imperial units – pounds weight, or in barrels and bags.
Standard quality also shows the features of the commodity being traded in the contract. Maybe that the commodity must have certain characteristics – the sesame seed must come from Benue or that it must be brown in color.
What of the Minimum Price? Exchanges can set up the minimum price increments at which a commodity can trade. Exchanges do not determine the prices for commodities, rather traders and member companies determine the commodity prices through a mechanism known as price discovery. It is the price at which supply and demand meet.
Then we come to Standardized Delivery. The exchanges state clearly the delivery, method of delivery, and place of delivery for each contract signed.
We will continue this journey in module – 2. Stay with us.
