Keeping Track of Tenders with AgFlow

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In this study, we analyze a sample of 5 years of agricultural commodities tenders’ results compiled by AgFlow to determine whether demand is price elastic or not. 

Tenders are some of the most transparent market events as they reveal the exact demand volumes and prices of specific commodities. And this is precisely why trading houses and governments follow tenders’ results so closely – because they provide transparency on bid and ask parties, as well as deep insights on their strategies such as: 

• Which trading house is bearish on a particular flow based on how much they have discounted the cargoes they just sold
• Which government is increasing its strategic stocks at a given level and given origin for the most competitive execution
• Which tender failed because both players have not met their targets
  

Nowadays, most tenders are readily available online through various media such as Twitter. And following accounts like RitaBuyse’s of Agro Commodities Monaco are a great way to keep an eye on new bids.

Credits: Rita Buyse

While Twitter can be used as an efficient and free tender tracking tool, it has one major shortcoming – it won’t enable you to view historical data. And to follow changes in strategies in any meaningful way, traders need to get access to a database where they can access years of tenders’ results. 

Since 2013, we have been building AgFlow’s database, containing 5 million data points today, including:

• Tenders
• Cash price quotes monthly
• Trade flows
• Freight indications

 AgFlow not only has gathered close to 4000 agricultural commodities public tenders – but it’s also the most granular source of public bids available out there. 

 If you were to search for Egyptian tenders for July 2020, you would find details on 

• Sellers
• Buyer
• Volume (MT)
• Commodity
• Specs
• Incoterm
• Date issued
• Delivery (start & end dates)

 Thanks to our historical database, we have enough data to assess when prices have hit the sweet spot for importers and to what extent.

 If yes, will they plan a long term supply pipeline?

The Methodology

We are crossing tenders results data such as:

• prices
• shipment periods
• volumes
• importers
• exporters

And FOB prices evolutions from key exporting origins.

 The methodology process is set as such:

 Step 1: We extracted the tenders results and FOB prices data for Egypt and South Korea from 2016 to 2020 with specific commodities:

• Wheat
• Corn

And specific exporting countries:

• France, Romania, Russia, and Ukraine for Egypt Tenders
• Brazil and the United States (USA) for South Korea

Step 2: Prices and Cargo Volumes aggregation in several datasets

Step 3: Barplots for Tenders Frequency analysis

Step 4: Barplots for Tenders Cargo Volumes analysis over time

Step 5: Joinplots FOB prices and Cargo Volumes density analysis

Step 6: Timeseries graphs for ‘Sweet spot’ analysis

Step 7: Results analytics for each Importer

Egypt Tenders

The first thing we do is to look at the frequency of Egyptian Tenders. This information is the first step towards understanding the motivations and patterns that rule the decision of Egyptian Tenders.

Frequency of Tenders

The results show a clear pattern. It returns only shipments for 1(Spot), and 2 months. Except for a unique contract with a shipment the same month.

Figure 1: Frequency of Tenders Shipment Period for Egypt between 2016 and 2020

Source: AgFlow.com

We see a majority of tendered contracts for Egypt were for the Spot period. This indicates that Egypt has built a pipeline for tenders with these shipment periods. In addition, tenders with shipments periods of 2 months are important in Egypt’s strategy as well.

It is, therefore, necessary to look at the volumes of the products they buy to understand their motivations.

Cargo Volumes of Tendered Contract 

For Egypt in general, we now know that it tenders principally for spot shipments. In consequence, they have to buy regardless of the price. On the opposite, the Cargo volumes are a great indicator of whether the market was bearish or encouraging.

Figure 2: Evolution of Cargo Volumes over time for Shipment at 1 and 2 months
Between 2016 and 2020

Source: AgFlow.com

From the graph, we understand that there is a pattern for spot shipments:

• Around May is the moment when the market seems to be in the right spot for Egypt, and thus it buys larger volumes
• The Market slowly shifts and becomes bearish throughout the summer
• Winter is when the market is at the lowest point of interest and volumes bought are minimal

This pattern matches the growth periods of wheat for the exporters we have. And we can conclude that spot shipments contracts are part of a streamlined pipeline for Egypt.

Now we look at cargo volumes for 2 months shipment. Strikingly there is a lack of pattern. This is a hint at the Egyptian strategy. These Tenders are probably specifically used when the market is in the right spot and maybe to complete the spot shipments buyings, when necessary.

FOB Prices and Volumes density

The next step is looking at the density plots for FOB Prices and cargo Volumes. 

 Figure 3: Density Plots for Cargo Volumes against FOB Prices, for shipments = 1, 2 months Between 2016 and 2020 

Source: AgFlow.com

The density plots for spot shipments show that, although the price changes through time for a given volume, Egypt still buys the product. Nonetheless, this also tells us something important about the volumes: they are almost always similar (As the vertical lineup of points shows). Hence, we understand that there are specific volumes necessary for Egypt in this pipeline.

Regarding the contracts with shipment at 2 months, we see that this trend is much less pronounced. The first density level shows lower average prices for given volumes (shown by a narrower first-level node). Meaning that these contracts are tendered for when the market hits the sweet spot. We also see that there is a density node in the 220$ price range, rarely hit for spot shipments. So those contracts are not tendered for “Sweet spot” moments.

Time-Series and the Sweet spot

At this point, we look at time-series to understand the logic behind the 2 months shipment contracts. We see that the tendered contracts are for two reasons:

• When the market hits the sweet spot
• When it is necessary to buy

Figure 4: Evolution of Cargo Volumes over time for Shipment at 1 and 2 months Between 2016 and 2020: Highlight for May 2018

Source: AgFlow.com

We take May 2018 (highlighted in red) as an example since it stands out both in seasonality and Cargo Volume for the contracts with 2 months’ shipments. We see that the previous year in the same period the cargo volumes were significantly less than for this specific month. That can imply that the market must have hit the sweet spot at that point. On the other hand, there are no precedents for this period. And looking at the spot shipment cargos for April and May in 2017 and 2018 (highlighted in grey) we understand that something happened with the spot shipment contracts. 

Figure 5: Time-Series For Egypt: Highlight Around May 2018

Source: AgFlow.com

Figure 6: Data For Tenders Contract in February and March 2018, shipment = 2 months

Source: AgFlow.com

The time-series shows the course of FOB prices over time. We cut the series into different months, and show the tenders contract as the red points. We see that the price in February is lower than the one for March for both contracts tendered. If Egypt wanted to hit the sweet spot at this point it would have bought more volume in February, which historically seems to be the case. Looking at Spot shipment contracts gives us the key to understanding the motivation behind the the March Tender.

It can be seen that in general two contracts are concluded each month. This is not the case for April through June. We can assume two things from that:

• Egypt probably knew at least since March that they were not using their usual streamlined pipeline for the months ahead
• The March Tendered Contract was tendered to compensate for this volume loss

South Korea Tenders

Looking at South Korea (SK) tendered contracts, this is another insightful flow for Tenders, as it differs greatly from Egypt, both in terms of strategies and observations. Moreover, we have two types of commodities this time with Corn in addition to Wheat. Again, we look at the frequency of tenders as the first step to understanding SK’s strategy.

Frequency of Tenders

This analysis yields different results this time around. South Korea spreads its tenders on more periods and different ones from Egypt. The tenders are mostly for shipments at 3, 4, and 5 months.

Figure 7: Frequency of Tenders Shipment Period for South Korea between 2016 and 2020

Source: AgFlow.com

We see that the two most important tenders’ types are for shipments at 3 and 4 months. Still, considering the number of contracts, the shipments at 5 months are not neglectable.

We understand that SK probably built several pipelines for Tenders. We then dig this deeper by looking at the evolution of cargo volumes.

Cargo Volumes of Tendered Contracts

Since we have several commodities, we separated Corn and Wheat. We then have a much deeper insight into the pipeline strategies of South Korea.
There are indeed different pipelines related to the different commodities it buys.

Figure 8: Evolution of Cargo Volumes over time for Shipments at 3, 4, and 5 months Between 2016 and 2020

Source: AgFlow.com

We observed that all three shipment periods are part of different Tenders pipelines. For shipment periods at 3 months, there are almost only Corn contracts. And the volume of cargos is extremely consistent over time. Then for shipments at 4 months, we mostly have wheat contracts with less consistent volumes but with almost 77% of them within the same range. Finally, for the 5 months’ shipments, we find a pattern for wheat contracts that indicates a streamlined pipeline. Nevertheless, there is no clear pattern for seasonality or time-frequency in these cases. We then assume that these pipelines are made for tendered contracts hitting the sweet spot. This idea is further strengthened with density plots.

FOB Prices and Volumes density

For South Korea, the density plots only provide more insight into the streamlining of its Tenders pipelines, and the aim to buy at the sweet spot.

We see that the density-level nodes are much clearer than for Egypt and show a clear pattern for the Price/Volume ratio.

Figure 9: Density Plot For Cargo Volumes against FOB Prices for Shipments = 3, 4, and 5 months, Corn and Wheat Between 2016 and 2020

 Source: AgFlow.com

 We see that all three joinplots compliment the patterns described earlier for the different shipments and commodities combinations. It is worth noting that the nodes for South Korea (and more specifically for Shipment = 3 months, Corn) are denser than for Egypt. As such, South Korea shows more acute decisions towards buying at the sweet spot.

Time-Series

Though the strategy for SK was working. We observe from the cargo volumes that the pattern of the tenders mutated between 2019 and 2020. This time we take a different approach for time-series for South Korea. We compare the evolution of FOB prices over time for shipment periods of 3, 4, and 5 months between 2017 and 2018. And the same evolution (with the addition of shipments at 6 months) for 2019 to now.
We find that there is a change in the price range that could be the source of this mutation.

Figure 10: Time-Series for South Korea: Comparison between 2017-2018 and 2019-2020

 Source: AgFlow.com

Looking at these graphs, we make two major observations:

• There is more variance overall in prices between 2017 and 2018 than between 2019 and 2020
• The prices hit lower spots during the 2017- 2018 period than during the 2019 – 2020 period

 These are clear indicators that the market has mutated between both periods. As the strategy for SK was to conclude tendered contracts for specific points, the first model must have suited them better. Thus, SK had to change its strategies. And this is probably due to the lack of variance and higher lows (no price under 200$) since 2019.

Conclusion

Throughout this study, we strived to look at whether or not the Tenders’ processes of  Importers were pipelined.  And if they managed to hit a sweet spot to conclude the contracts they sought to. In both cases, we had examples of the Importer hitting the sweet spot for its contracts. And both had created streamlined pipeline processes for specific Tenders. However, each had different motivations for doing so. 

In the case of Egypt, we demonstrated that it had created a pipeline for Spot shipments. Therefore not trying to hit a sweet spot to conclude the contracts it tendered. But that it created a second pipeline that was dedicated to tender in the sweet spots, as well as filling the gaps with its main pipeline.

On the other hand, South Korea created 3 different pipelines that dedicated to conclude tendered contracts hitting their specific sweet spot. But probably due to a market change, had to change strategies to continue fulfilling the aim of buying at the sweet spot.

In conclusion, we have two different importers with two different visions/ general strategies when it comes to conclude tendered contracts. Therefore, by understanding their vision and their aim in this market. Not only is it possible to understand what or when will be their next Tender due to their pipelined processes. But also to potentially predict with more or less accuracy their reaction to changes in the market. And generally speaking, to better keep track of Tenders.