Pricing methodology

Commodity3 Price Assessment Methodology

1. Who we are

Headquartered in Paris (Dampmart), Commodity3 SARL (C3) is an independent price reporting agency that offers an impartial, robust price reporting service dedicated to providing transparency in the markets it serves.

2. Objective of this document

The methodologies deployed by C3 are designed to provide fair market values in all the markets it assesses. As such, this document sets out how C3 arrives at its end-of-day price for global agriculture / energy / metal markets.

3. C3 Principles

While each market that C3 serves has its own individual characteristics, C3 adheres to a set of key principles when assessing markets.

Those are:

·         to timestamp its prices;

·         to ensure robust verification processes are followed to determine the quality of data;

·         to normalise non-standard market data using six key criteria; and

·         to evaluate whether the price information received is repeatable.

Each key principle is discussed in detail below.

3.1 Timestamped prices

C3 uses a survey-based approach as its primary price reporting mechanism. Every day C3 gather reports from market participants to identify key pricing information from across all the markets that it serves. Any data relating to prices, such as expressions of buying interest (bid); expressions of selling interest (offer); confirmed trade levels; tender or other contract details; pricing information from related or similar products; freight information and costs; derivative or exchange-listed contracts; and government information is collated on a daily basis and may factor in the final, end-of-day assessment.

In that effort, C3 aims to understand and highlight the factors that underpin price movement and gather a compelling weight of evidence around the end-of-day price.

All C3 European , Asian , North and South America prices are timestamped in GMT time whenever a new update arise on C3 website.  

All physical data that C3 captures through the day is captured and stored in our data processes, with the most relevant bid, offer or trade information shared as part of the final publication process as part of daily commentaries.

As such, prices published by C3 are never an index ( unless clearly specified with corresponding source ) of trades or a broad price range designed to encompass all trade done throughout the day, but rather the price of a given product at a given time.

3.2 Verification

C3 aims to bring transparency to the markets through an open approach to assessing markets. C3 makes every effort to verify credible information it receives with the broader market place through individual communication via email, instant messenger, app-based services and telephone. However, C3 recognises the challenges of verifying information individually and undertakes to publish such information through electronic means to as wide an audience as possible to allow market participants to challenge the authenticity of this information prior to the publication of the assessment. Such price alerts may be published online via the relevant C3 website, or through social media Twitter @C3Agri, @C3egy and @C3metal.

3.3 Normalisation

C3 believes there are six key pieces of information that impact the fair value of any given commodity. Those are: timing of price information, laycan, specification of the product, contract type, incoterm and location of delivery or loading port. As such, C3 publishes these details for every product that it assesses. Unfortunately information on volume are barely available (!)

Where received price indications or trades differ to the standard that C3 assesses, C3 reserves the right to normalise each price influencing factor. Details are given below.

3.3.1 Timing of price information

C3 will deliver price assessments all along the CET day, between 0700 to 2000  GMT based on physical pricing indications for the relevant markets assessed received during the day 24/24. In the absence of any firm bids, offers or trades, C3 reserves the right to normalise earlier price indications received throughout the day to the closing time by anchoring those price indications to more liquid contracts, such as those traded on exchange or other physical cash assessments.

3.3.2 Laycan

C3 defines the physical delivery or loading period that underpins each price assessment. In all cases, the laycan reflects a reasonable timeframe and is intended to prevent assessments being skewed by consideration of distressed or deferred cargoes.

In the absence of firm indications for the delivery or loading period of C3’ agriculture assessments, C3 reserves the right to imply future value from forward curves of related products.

Typically, spot cargo assessments are for the first full calendar month on publication dates for 1-20 of each month and for the second full calendar month for publication dates from 21 to the end of the month. The switch day may vary according markets, +/- 5 days.

For barges, the spot assessment refers to the next full calendar month, regardless of publication date.

3.3.3 Specification

C3 details the specification or physical qualities that are relevant to each assessment published. Specifications should reflect typically traded grades.

C3 reserves the right to normalise firm, verified bids, offers or trades it receives for relevant, related products of a different specification to determine value for. C3 will canvass the market to determine the exact normalisation factor for each product.

3.3.4 Quantity

C3 will consider a range of physical pricing information when making its assessment. In all cases, indications that align with the defined basis quantity will be directly considered in the end-of-day assessment.

C3 reserves the right to normalise firm bids and offers it receives for cargoes that are of a larger or smaller size than the assessment to determine fair value. C3 will canvass the market to determine the normalisation factor to be used and will publish that factor as part of its assessment process.

3.3.5 Incoterms and location of delivery and loading port

In all cases, C3 defines both the incoterms, such as CNF or FOB, that indications used in the final assessment should conform to. The base delivery or loading location will also be defined as part of the assessment methodology. Latest incoterms 2020 table will be made available from C3 Website for reference.

C3 reserves the right to normalise incoterms ( like EXW , EXT or EXM ) or delivery ports that differ from the base methodology using freight differentials or transportation costs. C3 will canvass the market to determine the normalisation factor to be used and will publish that factor as part of its service.

3.4 Repeatability

C3 takes all data into account when compiling an assessment. Where market data is conflicting, C3 will apply a test of repeatability to determine whether a trade that has been executed in the day is repeatable. In this case, firm bids and offers take priority over previous trades executed as that trade is deemed no longer repeatable. Where two trades for the same volume are executed at the same time for the same loading/delivery ports and with the same specification but at different price levels, C3 will determine which one is more repeatable by examining outstanding bids and offers that the time of the trade.

4. Hierarchy of data

C3 seeks price information that is open and transparent in the marketplace. Price information that does not meet these criteria – such as private and confidential trades – will not be taken into account. Generally, there are three levels of hierarchy of information.

1. Verified physical bids and offers at the close – these take precedence over any other pricing information and this information must be firm for a reasonable amount of time to be seen widely in the marketplace. What constitutes a reasonable amount of time is at the discretion of the market reporter.

2. In the absence of physical bids and offers for the exact product assessed, firms bids and offers for related products will be used to extrapolate value for the price assessments. Such related products will therefore be considered as Nominal.

3. On the rare occasions where there are no physical indications at the close in either the assessed product or a related product, C3 will move the commodity in line with the delta movement of the closest exchange-traded contract to maintain the basis differential or use movements in other physical markets should they be more relevant.

5. Net forwards

For certain CIF and CNF assessments, Commodity3 does not survey the market owing to a lack of liquidity or an absence of a competitive market place. In an effort to bring price transparency to key delivery points, Commodity3 adds a freight differential to FOB assessments for cargoes out of typical export locations.

These exporting locations are :  (freight rates are calculated OR taken from established freight information providers)      

                                 FOB    Argentina, Australia, Brazil, Canada, US Gulf, US PNW, France, Romania, Ukraine and Russia

Preferred freight rates are PANAMAX’s, but defaulted to SUPRAMAX/HANDYSIZE where suitable

FOB cash prices + Freight differentials are realtime/daily applied to the following assessments:

Wheat :                      CNF    Spain, Algeria, Turkey, Egypt, China, South Korea 

Corn / maize :            CNF    Spain, Algeria, Turkey, Egypt, China   

Barley :                     CNF    Saudi Arabia, China                        

Soybean :                  CNF    Netherland (RDM), Egypt, Turkey, China 

Canola :                     CNF    China

DDGS :                      CNF    China

Altogether we refresh 240 new instruments (todate), with low/hi/last values, corresponding to each freight area covered. E.g. the range of ports for Turkey goes from Izmir/Marmara/Bandirma.