Report: Agriculture value pool down 25% YoY in 2024

DAILY Bites

• Agricultural commodity trading is stabilizing, with a 25 percent drop in value pools as inventories return to normal and volatility declines.

• Despite compressed margins in 2024, long-term projections show steady growth, with trading value pools expected to reach $115 billion EBIT by 2030.

• Traders must adapt by refining risk management, leveraging data analytics, and investing in emerging sectors like biofuels and ag technology.

DAILY Discussion

Commodity trading has entered a period of normalization following the exceptional profit margins of recent years. In agriculture, a 25 percent drop in trading value pools year over year reflects a return to near-average crop inventories and more stable market conditions. “Agricultural commodity prices are closer to the marginal cost of production,” according to McKinsey & Company, signaling a shift away from the high volatility that characterized the market from 2020 to 2023.

According to the annual report, the boom in commodity trading in 2022 and 2023 was driven by extreme price swings, which attracted new traders and encouraged existing firms to expand their operations. However, as margins compressed in 2024, the competition among traders intensified. Despite this recent decline, long-term projections indicate steady growth, with commodity trading value pools expected to reach $115 billion EBIT by 2030.

For agriculture, supply adjustments to the record-high prices of the past few years have stabilized markets. Grain and oilseed inventories have rebounded, reducing price spikes and volatility. This stabilization has made it more difficult for traders to generate outsized profits purely from market fluctuations, requiring a shift in strategy.

Looking ahead, McKinsey & Company suggests that traders will need to adapt to a leaner environment by implementing new risk management tools and revising their operating models. The ability to quantify price exposure and manage trading risks effectively will be essential for success. While margins remain compressed in the short term, the broader trend in commodity trading suggests ongoing opportunities for growth, particularly in emerging sectors such as biofuels and agricultural technology investments.

The decline in agricultural commodity trading profits reflects broader changes across the industry. Energy sector value pools saw the sharpest reductions, with oil and oil products dropping by approximately 40 percent and liquefied natural gas (LNG) decreasing by 23 percent. Meanwhile, metals and mining margins showed resilience, with some merchant trading companies outperforming their 2023 results, leading to a nearly 20 percent increase in trading value pools.

Despite these challenges, agricultural traders can still find opportunities by leveraging advanced data analytics and diversifying their portfolios. McKinsey & Company notes the importance of commercial trading acumen and lean operating structures, particularly as global markets evolve and regulatory landscapes shift.

The agricultural sector’s recent downturn in trading profitability underscores the importance of adaptability in the face of changing market conditions. While volatility-driven profits may be harder to capture, strategic investments and improved trading methodologies will likely shape the next phase of agricultural commodity trading. With long-term market fundamentals still pointing toward growth, traders who embrace these shifts will be best positioned for success in the years ahead.