Sensitivity analysis of the collateral value in trading house financing structure, by exam-ining examples of grains

Suták, Péter

Keywords: commodity collateral, commodity financing, model, Monte-Carlo simulation, regression

Over the past decades, due to risks different from those existing in traditional company financing, and as a result of its special conditions of financing, agricultural funding enforced market operators to apply new assets, collaterals and a new assurance structure of funding.
In order to make the different forms of commodity finance generally available for busi-nesses, and provide a source of low-level risk, assets and goods providing the basis of funding must serve as appropriate and guaranteed collateral for the funders as well. That also involves up-to-date information about the coverage level and the factors affecting it during the whole repayment period, as well as statistical analysis of the factors, and funding market confidence towards the activity of the institutions (e.g. warehouses) taking part in or supporting the dif-ferent constructions.
Managing exchange rate risks by commodities is undermined by the fact that in the re-gion almost none of commodity products have a real futures market, which is liquid. More-over, both from the funders’ and the entrepreneurs’ side, it requires suitable qualification, in-formation infrastructure for handling data, and some sources for capital allocation. As de-scribed in the study, this form of funding and the simulation carried out on a calculation model applying its factors provide information about the likely trends of collateral value dur-ing the repayment period. Thus, it serves as a decision-making aid for the trading houses (funders), the funded undertakings and the operators of refinancing (typically financial institu-tions).
Parallel to the increasing price levels of commodity markets, it is necessary to apply more reasonable and more moderate financing rates on commodity financing structures. The development of the different rates of financing based on a range of values must be carried out on the basis of the previous years’ commodity prices, information about stock exchange fu-tures and distribution of prices. The model and the function developed by the relating regres-sion analysis can give a basis and assistance for determining security deposits for the different ranges of values. Given the planned maturity, in accordance with the multi-annual price dis-tribution of the funded agricultural product, it is possible to predict the likely trends in the col-lateral value.

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