In 2020, influenced by the COVID-19 pandemic, CME (the Chicago Mercantile Exchange Group)
abandoned the use of “open protest” in favor of electronic trading. It became the last U.S. grain
exchange to take this step. Thus, the entire grain futures trade became computerized.
This is just one fact that demonstrates the global trend of recent years in grain trading: the desire of
industry participants to maximally computerize the entire trade cycle, from the procedure of entering
into transactions to the post-sale execution of contracts related to the delivery of goods, documentation
and payment processing.
Ukraine still does not have its own grain exchange; agricultural products are traded on the physical
However, local grain traders every year are also more often thinking about using digital technology in their work, although this process is not as fast.
We asked Dmytro Mykhalchuk, the founder and CEO of GrainTrack, a popular Ukrainian accounting
system for grain traders, about global trends in computerization and automation of grain trading and
the shifts that are taking place in this direction in Ukraine.
“ROBOTS INSTEAD OF TRADERS AND BIG DATA”
Dmitry, you are an expert in such a narrow niche as digital in grain trading. In the era of rapid
development of digital technologies, this topic is extremely relevant for Ukraine, which is one of the
leading players on the world grain export market…
Hello. Thank you for the colorful presentation (smiling – ed.). As for my expertise. In such situations I
always remember the “10,000-hour rule,” according to which a person is considered an expert if he or
she has worked in his or her field for that amount of time.
I have been creating software for grain traders for over seven years, which is more than 10 thousand hours of work, even if we take an official 8-hour working day. So, I can probably already be considered a specialist in this field. But I’m one of those people who never stopped at what they had achieved, and I continue to learn new things every day.
Going back to your main question, I must say that you are right. Digital technology has been playing a really critical role in grain trading over the past decade, even if with a slight delay compared to other sectors of the economy. Thanks to their active implementation, the business, on which food security in the world largely depends, is literally changing before our eyes and changing for the better.
The main processes that have determined this transformation have taken place and continue to take
place in the West, particularly in the United States.
Ukraine, despite its important place in the world grain supply, unfortunately, is still in the rearguard of
these changes, but the process is also gradually shifting from the dead point.
What are these changes?
First and foremost, it is the completion of the transition to electronic futures trading. In March 2020, the last U.S. grain exchange, the CME, abandoned trading with an “open protest.” The last trigger for this was the coronavirus pandemic and the announced lockdown. To participate in trading, it is no longer necessary to have representatives on the floor of the exchange, it is enough to have an account in an electronic application.
The transition to online trading has provoked other changes – market players are increasingly trying to
use bots for algorithmic trading, which has significantly accelerated the speed of transactions.
At the same time, market participants are changing their approaches to working with data. Previously,
multinational companies had a monopoly on information that influenced trade decisions – data on the
weather, crop yields, demand, supply, the state of transportation infrastructure, and political risks.
Rapid access to this information through an extensive system of offices and strong analytical services
created a competitive advantage for market leaders. Today, with the development of the Internet, they
have lost this monopoly and, with it, their competitive advantages.
Therefore, companies began to look for margins in the collection and in-depth analysis of large amounts
of data (BigData) – both historical and those that reflect the current situation in the market.
The use of technologies such as artificial intelligence and machine learning helps companies improve
forecasting for informed trading decisions and risk assessment.
“THE GREAT DEPENDENCE ON SERVICES SLOWS DOWN THE FULL TRANSITION OF GRAIN TRADING TO E-COMMERCE.”
Everything you’re talking about is about grain futures trading. How has technology affected physical
Significant changes are also taking place in this direction. In recent years, many electronic marketplaces
have appeared in Europe, the U.S. and Canada, the purpose of which is to help grain producers sell their products more profitably. Such marketplaces allow farmers to quickly find buyers and safely sell their products at bargain prices.
However, I will not deny the fact that there are difficulties on the way of full digitization of trade operations with grain on the physical market. They are dictated by the specifics of grain trade. Unlike the retail trade, the wholesale grain trade is too dependent on services – such as transporting the crop from the farm to a line elevator, port, or processor; storing the grain to meet quality standards; and processing the grain, documenting it, and making financial transactions. Farmers often do not have the necessary infrastructure, skills and experience to trade directly without mediators.
For these reasons, these trading platforms are still local in nature and cannot grow into global projects, like Amazon for retail trade.
You mentioned the problems that stand in the way of digitalization of grain trade. How smooth is the process of adopting new technology in the area we’re talking about, anyway? Aren’t there other problems with that?
There are problems, and many of them. We should take into consideration that the flagships in the question of technology application are the biggest trading companies, which have budgets for this. Very often they provide money for projects that are essentially pilot projects, and there are many of them.
Some of them show their effectiveness, and some do not. But the vector itself is more important here. We must not forget one more important point. Technology for grain trading – it is a stick with two ends: on the one hand, it can bring competitive advantage to companies that use it, on the other hand – is a challenge to market participants because it can gradually change the rules of the game.
For example, take the marketplaces we have just talked about. Their creators are very often independent investors, and their goal is to make money by helping manufacturers and consumers directly conclude transactions. On the one hand, this is a good thing, because it removes unnecessary intermediaries from the value chain. However, it will certainly lead to the departure from the market of some players, both grain traders and brokerage companies.
“BLOCKCHAIN DOESN’T SATISFY THE HOPES FOR OPTIMIZING PROCESSES IN GRAIN TRADING”
What do you think about the prospects of using blockchain technology in grain trading, which has been talked about so much lately?
I look at this question critically. There’s been a lot of buzz about this technology since it came out, but not a lot of results. There have been high hopes for secure information exchange between grain traders, which is supposed to make trade more transparent.
Every year there are statements about the opening of various projects for grain traders based on this technology. The last of them is Covantis platform, the creation of which was announced this year by the members of the quartet of the largest grain traders ABCD. The platform is designed to increase transparency in the exchange of documents during transportation of grain by sea.
However, as of today we do not see any independent objective feedback about the significant results achieved in this direction.
How has the COVID-19 pandemic affected the popularity of digital technology among grain traders?
In 2020, during the first wave of the coronavirus, our company conducted a survey among grain traders. We asked if companies felt the effects of the shift to remote working. The answers were expected, but revealing. Those companies that had previously automated internal operational processes, did not notice any changes, while companies that conducted operations in Excel, encountered some problems in communication and work.
In my opinion, the pandemic will simply accelerate technological change in a field that is long overdue. An industry that has remained conservative for a long time should finally wake up and finally transform itself toward greater transparency, openness, and simplification of operations.
“MOST UKRAINIAN COMPANIES ARE JUST COMING TO UNDERSTAND THE NEED TO IMPLEMENT AN AUTOMATIZATION SYSTEM”
At the beginning of the interview you said that Ukraine is still far from the West in terms of using digital technology in grain trading. Why and how far are we lagging behind?
There is really a significant gap between us. Here, before we talk about technology, we must say a few words about the different levels of development of markets. Everybody knows that we don’t have exchange trade, the main trade is concentrated on the physical market. Market participants hedge risks much less frequently than in the West and use a limited arsenal of financial instruments.
The situation is similar when it comes to digitalization. Generally speaking, at present our market is at the primary stage of implementation of trading technologies – this is the stage of search and integration of internal information systems (CRM, ERP, CTRM) with the purpose of digitization of document flow, trade positions management, risk assessment and standardization and automatization of office processes (purchase/sale, execution).
The Western market went through this process back in the early 2000s, and all the rest of the time there has been constant improvement of the corresponding software.
Most of our companies are just coming to understanding of the need for rudimentary automation. They already understand that grain trading is too specific business to conduct it in Excel and with the help of cell phones. They are even looking for suitable automation systems, but only small part of them is mentally ready to work in new conditions and even smaller part of them is ready to invest money and really reconstruct it, not understanding that it is a question of their growth and development.
But that’s only part of the problem. Use of Excel hampers not only development of a single business but also grain trading as an industry. Western companies today trade grain with reference to futures quotes, hedge their risks and get profit from it. To do this they use automation systems, quickly control their trading positions, see the movement of goods and funds. Many of our companies do everything in spreadsheets, with which the use of such financial instruments is simply impossible.
As for the transition of our grain trading to online, the situation is not clear. On the one hand, we have several sites where farmers can sell their products, and traders or processors can contract free volumes from producers.
However, the functions of these sites are most often reduced to the role of ” announcement boards” without any means of automating processes and creating additional value for clients. Western platforms have gone much further in this regard – they already support integration with software that farms use, such as precision farming, farm management and others, which enable a significant degree of automation of the bidding and tendering process.
Dmitry, your company is actually a participant in the transformation of grain trading itself. What do you do?
GrainTrack, which I founded in 2015, developed the first CTRM system for grain traders in Eastern Europe. We started as a startup, and today we already have clients on three continents – North America, Eurasia and Africa. And the westernmost point on the map, where we have clients, is Canada, and the easternmost is Singapore. The total annual trade turnover of these companies exceeds 40 million tons, which is almost comparable to the annual volume of grain exports from Ukraine.
If to say in simple terms, our program – is such an advanced CRM-system. If regular CRM covers only one process – to automate the interaction of companies with contractors, our program allows you to digitize and automate all phases of the company – directly purchase and sale, the process of execution of the contract (logistics, payments), as well as generate an automatic mode, all the necessary financial reports and analytics.
How much competition is there in this service market today?
If we talk about the world as a whole, the competition is really high, there are many similar products in the West. In Ukraine, there is less competition. First, we have an exclusive product, we developed it from the ground zero. Secondly, foreign analogues that try to expand on our market are often too expensive and hard to use for local companies.
On the contrary, from the very beginning we tried to develop a customized product with a set of functions, which will suit both Ukrainian companies and western customers. Today, it gives us an opportunity not only to work in Ukraine but also to “take a bite” of our own piece of the pie in foreign markets.
What prevents the introduction of technology in grain trading in Ukraine today, in your opinion?
The need for this transition is long overdue. But there are a number of barriers to this process, some of them are objective, some are subjective.
Objective reasons include the complexity of the value chain in grain trading and complicated reporting procedures for transactions to the state, which creates difficulties in the transition to e-commerce; the historical conservatism of the industry, where companies are in no hurry to change their approaches to work; lack of objective information about the benefits of digital transformation.
Subjective factors are technology fees; companies are often not willing to invest even a little money in something that they already seem to work without.
Give your prediction, how will the global grain trading market change under the influence of digital technology over the next 5-10 years? Will robots leave traders without work or not?
They won’t (smiles – ed.). Traders can sleep well. Even today there are cases where traders give up algorithmic trading and return to phones in search of greater margins.
This once again confirms the thesis that the transformation of the market and the introduction of new approaches is not a straight line question. And that’s fine and normal. Any transformation is always a process of trials and errors. Some approaches and tools prove their usefulness and take root, while others prove ineffective and are abandoned.
However, I think that market participants will continue to look for extra margin in new technologies. But they will do it on the basis of clear development strategies instead of throwing money away on disparate pilot projects in order to test some hypotheses.
In addition, the entire physical market, following the futures market, will of course more and more move online. Also, it will probably be possible to achieve mOre automatization of the processes of post-sale execution of contracts.