To call A.I. the great big trend of the year would be something of an insult to the last half decade. In fact, we’ve been talking about the ever-changing nature of the commodity trading industry pretty much since the launch of Agiblocks. As artificial intelligence and the benefits of machine learning are finding their way into our customs and habits in all walks of life, it is becoming more commonplace in the commodity industry as well. Which is why we’ve started a new series on AI in commodity trading and how we can wield these modern tools to our advantage.
In part one, we talked about the benefits of using AI to support daily processes in general. In this follow-up, we’ll look at ways modern CTRM systems can use AI to improve their price forecasting, their risk management and ultimately their data-driven decision-making.
While AI to many mostly refers to the large language models (chatbots) like ChatGPT and DeepSeek, it actually covers the simulation of human intelligence in all machines. It enables computers and systems to perform typically ‘human’ tasks such as learning, reasoning, problem-solving, perception, and atural language understanding.
As such, it covers a wide range of possibilities, with AI built using technologies like machine learning, deep learning, and neural networks to radically innovate everything from healthcare, education and finance to agriculture, manufacturing and indeed commodity trading industries. Focusing on the latter industry, AI has already significantly improved daily tasks for traders, especially those working with smart CTRM software systems. In this update, we’ll focus on one of those benefits: improved price forecasting.
AI and price forecasting
Let’s start with a specific branch of AI that we’ve just mentioned: machine learning. It enables computers to learn from data and improve their performance on a task without being explicitly programmed – with algorithms that can recognize patterns, make predictions (including on pricing), and adapt based on experience, often using techniques like supervised, unsupervised, and reinforcement learning.
Risk management tools can include the use of advanced analytics and machine learning algorithms to predict market trends, as well as the implementation of rigorous supply chain management processes to ensure that inventory is tracked and managed effectively. Tools that can be used to analyze a wide range of data, including weather patterns, crop yields, and consumer behavior, to predict market trends and identify potential risks.
Traditional forecasting relied on historical patterns and linear regression models. AI has introduced sophisticated machine learning techniques, such as random forests, gradient boosting, and deep learning which adapt to evolving market conditions. It can even
incorporate alternative datasets like weather patterns, satellite imagery, and port traffic data to predict supply and demand shifts. For example, a company that is trading coffee may use machine learning algorithms to analyze historical weather patterns in coffee-producing countries and predict the likelihood of a drought occurring in the future. This information can be used to make informed decisions about when and how to purchase coffee, at the right price, in order to minimize the risk of supply chain disruptions and price volatility.
Market predictions
Another great example is ‘sentiment analysis’ using NLP or Natural Language Processing. NLP is another brand of AI, enabling computers to understand, interpret, and generate human language. It combines linguistics, machine learning, and deep learning to process text and speech in a way that mimics human communication. NLP powers applications like the aforementioned chatbots, search engines, and automated summarization tools. As such, it can help to analyze news articles, social media, and financial reports to gauge market sentiment, which can influence prices. (For instance, if reports of labor strikes in Colombian coffee regions emerge, the system may adjust price forecasts accordingly).
Let’s stick with coffee for now. When an unexpected frost in Brazil severely impacted coffee crops, AI models utilizing weather data were able to predict potential shortages ahead of traditional forecasting methods, giving certain traders a competitive edge. And when AI systems identified logistical issues at Vietnamese ports during the covid pandemic, it helped traders adjust their strategies before significant price spikes.
Coffee price forecasting has indeed seen remarkable improvements with AI, particularly in CTRM systems designed for agricultural commodities. Coffee markets are influenced by a complex mix of factors, including weather patterns, geopolitical developments, currency fluctuations, and supply chain logistics. In general, limited production countries influence the price of a commodity, and indeed the same applies to coffee, as the greatest part of global supply is offered by just a few countries. More specifically however, the correlation between the two major types of coffee – Robusta and Arabica – is an important factor in pricings. When demand for one goes up, so does the price, while demand of the other declines (as does the price). Monitoring both can be a very useful indicator for future prices. AI can track vessel traffic, port activity, and logistics disruptions in major coffee-exporting countries like Brazil, Vietnam, and Colombia. Satellite imagery can monitor plantation health, giving traders early warnings about potential yield shortfalls.
Data integration
Of course, availability of reliable, high-quality data (such as plantation health, yield reports) is essential. In Agiblocks, you can rely on partnerships such as with AgFlow (developing predictive analytics tools that integrate data from key producing regions with real-time shipment tracking) and FinanceAgri to bring all your data needs together in a single universe. Whether it be derivative and physical commodity quotes, international news, reports, statistics, charting tools, technical and fundamental analyses, weather, or freight and tenders, you can find it all in one user-friendly SAAS environment.
In fact, one important benefit of Agiboo’s Azure cloud infrastructure is the fact that it provides connectivity to a whole range of microservices and integrations, including the main ERP solutions, numerous accounting packages, container management, digital signature apps, data sources, analytics, and reporting. Additionally, Agiboo has partnered with value-added strategic partners such as Agflow (to automate market premiums and cut down data collection time), Tradesparent (advanced RM features to take commodity management to the next level), Loqsea (in order to add real-time risk management) and many more, which provides further benefits to our customers. And did you know we have connectors for MS Business Central and support the many benefits of PowerBI as well?
Risk Management
As (better) price forecasting helps identify volatility, trends, and potential risks, allowing businesses and investors to prepare for various market scenarios, it informs risk management (the RM-part of CTRM), helping commodity traders by building complex models that simulate various market scenarios. These models consider various factors, such as political instability, economic shifts, and environmental disasters, to assess how these events might impact the price of commodities. AI then generates risk reports, allowing traders to make decisions that align with their risk tolerance. In real-time, no less.
How quickly can you assess your total exposure? With modern CTRM systems, you don’t have to imagine – you know exactly where you stand at any moment;
- Instant position updates as markets move
- Automated alerts when exposure limits are approached
- Quick scenario analysis for potential trades
- Real-time P&L calculations
In volatile markets, timing is everything. Prices can change drastically in just a matter of hours, which means any delay in information can lead to significant financial exposure. Agiblocks provides real-time updates on trading positions, allowing traders to make informed decisions instantly. It ensures they know their exact position at any given moment, helping them avoid overexposure or missing out on profitable opportunities.
Agiblocks also offers a transparent overview of the underlying contracts and deliveries that build up a particular position. This visibility into how positions are constructed helps traders understand their exposure comprehensively, reducing surprises and enhancing strategic decision-making. Another key aspect of position management is ensuring that exposure to market volatility is properly hedged. With Agiblocks, traders can easily monitor their futures positions alongside their physical positions, providing an integrated view that shows whether they are effectively hedged or need to adjust their strategies.
Get started today – with Agiblocks
As the commodity trading landscape continues to evolve, it is not a question of whether or not you should embrace modern CTRM software solutions, but how to do it in a way that best serves your trading strategy. Because whatever your stance on AI, the future – of any trade – belongs to those who can adapt quickly, make informed decisions, and manage risk effectively. Better data makes for better decision-making. It is that simple.
Are you ready for what is next?
Agiblocks provides detailed features and functions, in many cases specialized for a certain commodity or commodity group, because capturing all underlying details is simply a necessity for success. At Agiboo we know you need to have all the relevant data, and it needs to be reliable so you can respond to the real situation. It needs to be supported by quality mechanisms, available in real-time and capturing everything from pricing/hedging to trading factors and specific functions and features. That is why we made sure Agiblocks is a commodity-specific CTRM solution: to match all the intricacies of your particular industry. Or, better yet, all the complexities of your daily routine. Now powered by AI enhancements.
If you’re interested in having our team demo the latest version, reach out to us here!
Upcoming in this series
- Making supply chains work better with AI
- Getting started with AI in your trading business
- What’s next in trading technology
