Summary
The volatile nature of agri-commodity Bussiness will become a victim of financial denials from Banks and other financial institutions. The low demand on the world market due to the un willingness of the consumers to spend affects the price of the commodities negatively. This in results leads to poor commodity performances and as such the financial instutitions are hesistant to inject in funds.
Analysis
Financial institutions play a big role in the operations of commodity
trading companies.They are the financiers of the operations by
providing loans to these companies.
The nature of the commodity trading business in volatile as prices keep on fluctuating from time to time.
The credit crunch greatly affects the Cycle of the commodity
business.Its major implication is that Banks and other financial
institutions are hesitant to fund the Commdity Business.
As amatter of Principle,Financial institutions target better perfoming Businesses to minimise on the problems of Loan recovery.
The credit crunch has restricted the credit availability at the same
making customer hesitant to spend on textile and apparels.The Spinning
mills are having low production levels with a few skeleton staff
since there is low demand.The low levels of milling activity are
evidenced in china which accounts for more than 40% of world cotton
consumption.
The effect of the the volatile market has been greatly felt by
producers world wide.This coupled with higher fuel costs and higher
fertilizer costs yet there is minimal funding from banks has been of
great damage.
There is apossibility of widespread mergers between companies to
withstand the credit crunch.Those that are not stable will be subject
to aquisitions and others eventual pull out from Business.The other
alternative may be monitoring the road to economic recovery.
In general the current financial situation and the unstable economy has
affected the consumers confidence to spend on textile and other
apparels this in turn has affected the cotton market together with
other commodities world wide.
