The explosion of data combined with the application of proper data management, AI and ML and visualization tools is opening up previously unheard of opportunities in commodity trading – as well as forcing some more conventional traders to pull back from the market. Take for example, CME Datamine. CME Datamine is “a self-service cloud solution offering an integrated, streamlined process with data delivery points in the marketplace. Inform your trading strategies with market data from CME Group, including CBOT, NYMEX, COMEX, DME as well as new third party data.” Among the data sets available are agricultural and energy data sets from Orbital Insight and TellusLabs, for example.
Orbital Insight sources satellite, drone, balloon, and other unmanned aerial vehicle data and automatically analyzes it using artificial intelligence. Among all of that data are daily estimates for floating roof tank (FRT) oil inventory levels around the world. It monitors more than 25,000 FRTs daily across the globe, including the U.S., China, OPEC, and EMEA. TellusLabs monitors a number of crop health characteristics through satellite imagery and machine learning and these agricultural data sets can be used by decision-makers where time-sensitive and accurate information may be an advantage.
Recent articles about Cargill have also demonstrated some of the approaches it is using with data to gain competitive advantage. As the FT described it in a recent article, Cargill “is hiring data scientists to find ways to profit from the scraps of information picked up as food commodities flow through its factories, silos and ports.” The same article goes on to state that “Justin Kershaw, Cargill chief information officer, envisions using machine learning for tasks including finding the best shipping routes, reading satellite images to assess crops’ vigour and interpreting microphone recordings of shrimp to let farmers know when to add more fish feed, one of Cargill’s products. “Shrimp make a sound when they eat,” Mr Kershaw told the Financial Times. “In the Cargill data platform, we are collecting acoustical information about shrimp and analysing that.” “
Meanwhile, trading is also been taken over by the bots. Automated trading is on the rise in commodities markets, with increases extending to 25% in some financial futures sectors, like grains and oilseeds, over the years 2014-2016 according to CME statistics. In intraday power and gas markets, algo and automated trading are also well established and a number of platforms are on the market that offer these capabilities. However, this rise in trading automation and AI is apparently having an impact as many funds have closed shop or given up trading citing AI as a reason why. For example and according to the Reuters article, “commodity hedge fund Jamison Capital Partners run by Stephen Jamison closed. He told investors that machine learning and artificial intelligence had eliminated short-term trading opportunities, while commodities did not offer obvious benefits in the long term.” The article cites numerous other examples.
According to the results of our recent Disruptive Technology report, data management and the application of techniques like AI and ML are where investment is being made in commodities at the moment. While blockchain gets a lot of the news, Data, AI and ML is getting the dollars.