FAQs
What is a Commodities Exchange?

A commodities exchange is a legal entity that determines and enforces rules and procedures for the trading of standardized commodity contracts.

AFEX Commodities Exchange provides a national trading platform and develops a supply chain network for select commodities. Our approach is to create a market that includes the small local farmers which means not providing an exchange for the financial market alone.

AFEX provides support for this process and encourage practitioners by designing vehicles that make investment opportunities that are otherwise too risky or complex to pursue, easier and safer for farmers and investors.

What is the legal framework to regulate the commodity market?

The Securities and Exchange Commission (SEC), Nigeria is the apex regulatory institution of the Nigerian commodities market, and is supervised by the Federal Ministry of Finance.

Why should I invest in agricultural commodities?

Agricultural commodities may be appealing as an investment for many reasons. These assets can serve as an effective hedge against inflation, since food prices are often among the first to rise when prices begin to climb. Agricultural commodities can also perform well when global populations are growing, or when a growing middle class leads to increased demand.

What is a commodity warehouse?

A warehouse is a building that is constructed for storage of commodities such as manufactured goods, agricultural produce, etc.

What are the investment opportunities available in the commodities market?

Commodities markets across the world trade in agricultural products and other raw materials (like wheat, barley, sugar, maize, cotton, cocoa, coffee, milk products, oil, metals, etc.) and contracts based on them. These contracts can include spot prices, forwards, futures and options on futures

What is a warehouse receipt?

A warehouse receipt is a document of title showing grade, weight, mode of packaging, name and address of the warehouse manager and, in some cases, the shelve life of the commodity

Can warehouse receipts be traded?

Yes, if it is negotiable

How was AFEX established?

AFEX Commodities Exchange Limited (AFEX)Nigeria was established in Nigeria in 2014 through a Public Private Partnership with the Federal Ministry of Agriculture and Rural Development (FMARD) to establish a Warehouse Receipt System (WRS) and Commodities Exchange for Nigeria. AFEX secured its license as a Commodities Exchange in compliance with the Investments & Securities Act, 2007 and the Securities and Exchange Commission's Rules & Regulations in March 2015 and is the first private-sector led and funded Commodities Exchange in Nigeria and across West and Central Africa.

What does AFEX do?

We enable the transition from production to transaction for agriculture commodities. AFEX Nigeria provide solutions to farmer's challenges in aggregation, storage and financial inclusion. AFEX Nigeria generates agri-finance data, intelligence, and deal flow to increase private sector investment in commodities.

What are the products offered by AFEX?

  1. AFEX Commodities Index
  2. Exchange Traded Security
  3. Food Security Funds
  4. Forward Contacts
  5. Repo/Buy-backs
  6. Collateral Management
  7. Input Program
  8. Storage & Aggregation Services
AFEX technical capabilities

We pride ourselves as the leader in commercial storage and collateral management services in the country with a strong focus on preserving the integrity of the underlying assets and also managing the risk of our clients.

Why become a member?

We are an organized and efficient platform within which financial market participants can actively participate in the commodities markets. Our Members are from diverse firms and interest groups, ranging from the farmers, dealers, market regulators, market makers, investors, brokers and other interested participants. As a Member of AFEX, you gain access to one of Africa's leading and largest commodities exchange

Who can apply to be a member?

Any individual/institution can become a member. You can become a member whether you're a farmer, a private investor looking to diversify your portfolio, a business or intermediary seeking capital, or a public agency or philanthropic foundation looking to make your funds go further. As a member you will join a global community of institutions and businesses dedicated to increasing the livelihood of smallholder farmers and driving capital to where it is needed most.

What benefit does AFEX offer to its members?

AFEX offers its members a combination of the following benefits:

Data & Intelligence: Original content that builds the evidence base for Agri-finance and supports practitioners in their efforts to execute transactions, including access to data on past finance transactions, trend reports, region and sector briefs.

Deal Flow: An online deal and investor matchmaking platform for investors and those seeking capital to connect on finance deals.

How much does membership cost?

Membership fees are due annually and are dependent on type. Read more on our membership categories here.

How will farmers know the current price of their produce?

Closing Prices of agricultural produce on the exchange are displayed in our warehouses and will be relayed daily on radio and television as well as published in the print media. Information on current prices of agricultural produce can also be obtained from AFEX Website.

Who can trade on a commodity exchange?

Like on a Stock Exchange, individuals are not allowed to trade directly on a Commodity Exchange except through accredited commodity brokers who are registered members of the exchange.

Who can make access the exchange?

Anyone that is engaged in the commodity business can make use of the exchange. This includes farmers, commodity merchants and commodity processors such as food and beverage companies.

Why should major consumers of agricultural produce make use of a commodity exchange in sourcing their raw materials?

Apart from promoting realistic pricing and price discovery, a Commodities exchange is capable of making possible the following for the major consumers:

  1. Low cost of transaction as there will be a reduction in search cost
  2. Guaranteed quality
  3. Regular supply of the required raw materials as AFEX will have a network of members that are merchants in various crops
  4. Reduction or total elimination of contract failures as trading members operate strictly according to the rules

Is there any minimum quantity that one can trade on the exchange?

The minimum quantity that can be traded is 10 Metric Tons.

What determines the contract size?

They are set and determined by the exchange.

Is trade default possible on an exchange?

Yes, but very rare.

Where can I find the descriptions of commodity prices and indices, including data sources and commodity grades and weights?

Commodity grades and weights can be found here.

If I buy now, what happens. I am not interested in the physical commodity?

You monitor the prices, through our index and price reports. When you are ready to trade, we facilitate the trade through the exchange.

How long would trade take?

Instantaneous

How soon can I expect returns following the execution of a trade?

Settlement is due two days after trade execution whilst clearing is one day after execution.

What are the trading hours?

10am -2pm

What is collateral management?

Collateral Management is the process by which the collateral in a warehouse used by a borrower from a financial institution is sold by a collateral manager to recover the lender's investment. For example, when a financial institution finances farmers in a collateral management contract, the collateral manager appointed by the company will ensure that it buys the farm inputs for the farmers, provides working capital and supervises their farm operations to the point of harvest. The collateral manager supervises the farmers during harvest and ensures that all that is harvested is deposited in an agreed warehouse. The goods will be sold, or delivered to the lender by the collateral manager, which will pay the lender, recover cost of its services and distribute the left over to the farmers as income from operations.

Who is a collateral manager?

A Collateral Manager is an intermediary between the borrower (e.g. a farmer who borrows on the strength of the collateral he has in a public warehouse) and the financier or the lender (e.g. a financial institution).

What is a Forward Contact?

A forward contract is a customized contract between two parties to buy or sell an asset at a specified price on a future date. An AFEX forward contract helps to assure processing companies of a steady supply of their required raw materials while guaranteeing sellers a firm price at a future date.

What are the benefits of AFEX Commodity forward market?

Forward markets perform two very important roles. One is price discovery and second is hedging of price risk. Price discovery comes about through collective assessment of a large number of individual market participants about the direction and price trends of a commodity in future. This helps the farmers and processing companies to plan production. This also leads to the second function namely hedging of price risk. With a general sense of the likely future price, farmers and processing companies can lock in their produce so that risk of price or availability is mitigated

What is potentially lost by entering into a contract on forward Commodities sale/purchase?

In the case of forward purchase, the buyer will bear extra costs if the price at transaction date is lower than the agreed forward price (as it would be cheaper to buy commodities at the price as at transaction date). Forward sale of commodities means that the seller will lose potential extra profit if the price at transaction date is higher than the agreed forward price (as more money could be earned by selling the commodity in the market at the current price). Both these cases illustrate the opportunity cost of forward sale/purchase of commodities. In effect, it is a small price companies choose to pay in return for certainty, safety and responsibility for themselves, their shareholders and their staff.

The price of forward Commodities sale/purchase - how is it set and what it reflects?

The pricing of commodity forwards is primarily a computation category. It can be done in a couple of ways: It can be based on the current spot price of the commodity being bought/sold and the addition of storage costs for the period the product will be under storage. It can also be based on identifying the cost of capital and using that to determine the average purchase price for the year. Or in any method participants deem fit.

Will AFEX make provision for deliveries?

AFEX Nigeria has logistics partners that facilitate trade delivery.

Can I sell my commodity at any time?

AFEX will take responsibility to liquidate the products in cases of low demand, but will not buy the produce to avoid possible conflict of interest or being accused of making prices. AFEX also works with large corporates to buy from the system, so liquidity will be guaranteed.

What is AFEX Input Financing?

AFEX arranges for financing with interested investors; organizes and coordinates the supply of required inputs to the warehouse through our strategic partnership with suppliers; and disburses to farmers while Investors are invoiced the value of loan disbursed. Activity is carried out by the farmers and AFEX provides reports monthly to investors. We work with farmers to reduce post-harvest losses through provision of storage facilities close to farmers. Upon a successful harvest, grains of equivalent value to the loan of each farmer are taken to AFEX's warehouses and we ensure payment settlement.

What is AFEX Repo/Buy back?

This a financing solution for manufacturing firms. This solution frees up cash flow for the firm and guarantees availability of stock for consumption through the season. Here, the financier and manufacturing firm pre-agree on the repo rate to transact with and AFEX, acting as the collateral manager, oversees and guarantees the quality and quantity of the stock for the financier.

What is AFEX Food Security Fund for?

AFEX Food Security Fund addresses a growing credit gap in the agricultural and agri-food sector, as local agricultural companies have insufficient access to credit from local banks, funds and other lenders. To close this gap, the Fund will raise capital from institutional investors to lend to responsible local agricultural aggregators (e.g. farmers, cooperatives, traders, and processors) primarily in the form of working capital.

Who has access to the Fund?

AFEX Food Security Fund will offer a complementary source of financing to aggregators (farmers, cooperatives, traders, and processors) by entering into risk- sharing arrangements with corporates. Loans will be provided to aggregators based on the quality of their supply chain relationships with corporates instead of solely relying on collateral, which many aggregators do not have enough of.

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