April 19th, 2024
Commodities processors often face challenges in securing their large-scale supply needs. A primary concern is volume security — ensuring enough commodity volume is available at a large scale. Sourcing from a single region exposes the business to global price fluctuations and potential supply disruptions. Even though local prices might be stable, global factors can significantly impact their ability to acquire commodities, as well as their cost. Plus, the business has to make crucial decisions regarding contracting/volume allocation months in advance. This necessitates early insights into the global market to optimize their contracting strategy and navigate price volatility.
This challenge demands a multi-pronged approach:
The company chose to partner with ClimateAi and used ClimateLens Monitor Yield Outlook to understand expected volumes at key sourcing locations, to help drive their contracting strategy. The AI-driven Yield Outlook report translates weather-related hazards into impact on yield across multiple corn regions, taking into account timing and severity of the hazard relative to the crop’s phenological stage and hazard vulnerability.
Reports are updated weekly throughout the season so that the team can understand how changing conditions can impact expected yield. With granular, location-specific forecasts, the team has access to more specific data on direct sourcing locations, rather than solely relying on general market analysis. ClimateAi ensures all deployed models undergo rigorous development and validation processes, ensuring their accuracy and reliability.
The company received insight from ClimateAi during the planting phase of the 2022 corn-growing season that the US corn market would be affected by cold stress during planting, likely leading to lower yield. This report informed their decision to proactively lock in desired volumes at favorable terms with this advance knowledge.
They continued to use ClimateAi’s reports in 2023, and expanded their contract to use its other tools for even more insights, such as ClimateLens Monitor, which offers day-to-day and weeks ahead forecasts on specific climatological variables, to enable operational decision-making on a 1-6-month timescale.
The company used ClimateLens Monitor Yield Outlook to inform its contracting decisions. This analysis shows how ClimateAi’s platform yielded promising results:
1. Planting: ClimateAi identified risks related to cold stress during corn planting before other sources. This forecast proved correct and the planting season was negatively affected, resulting in increased market volatility and higher prices.
2. Mid-season: ClimateAi identified potential yield forecast improvements, allowing the business to adjust their positions reflecting this more optimistic outlook. This forecast again proved correct; acting upon these recommendations by leveraging call options supported their strategy, netting anywhere from $2 million to $6 million depending on timing of the action.
Disclaimer: This analysis is for informational purposes only and should not be considered financial advice. Market conditions are subject to change, and past performance does not guarantee future results.