Here are important lessons for the small entrepreneurs who want to be successful in the commodity business. # Do not Consider Yourself a King of the Forest: Since the commodity business is a highly risky and volatile business, entrepreneurs must not consider themselves the king of the forest, even if they are successful. The common mistake they commit is that they start thinking that the market works as per their wish, which turns out to be disastrous for them. They must not consider themselves bigger than the market.  - Hedge and Play Position – 80:20 Rule The entrepreneurs who want to stay longer in the market in the commodity business should follow the 80:20 rule to minimise the risk: - Hedge (close position) - 80% - Play (open position) - 20% For example, an entrepreneur trading 100 tons of a product, must hedge 80 tons under the forward market thorough MCDX and MCX (commodity exchanges), and keep 20 tons in the open position to get the benefits of the market in case the price increases. # Risks in the Commodity Business In this volatile world, many factors define commodity prices. A trader needs to oversee all these potential risks to manage them perfectly: - Political Risk - Currency Risk (fluctuation of Rupees against the US Dollar) - Counterparty Risk - Corona Virus Risk - Ways to Spot and Manage the risks To tackle the risks involved in the commodity business, you need to be aware of what is going around the world. So, a trader needs to: - Read the newspaper daily - Read business newspapers like: - Economics Times - Business Line - Study about all the potential risks in his/her business - Perform statistical analysis of the demand and supply - Keep Track of Demand and Supply You have to assess the commodity you are dealing with. To know whether the market will be high or low, keep track of: - What is the supply? - What is the demand? # Build Capacity to bear the Losses If you deal in a commodity business, then you should assess your capacity to bear the losses. For example, if you have a capacity to bear the loss of Rs 10 crore, without jeopardising your business, then you must take risk up to that amount only. ## Define Your Stop-Loss An entrepreneur must not be wedded to his stop-loss position. The entrepreneurs, who do not leave their position in the hope of a turnaround in the market, can lose their entire capital. Therefore, to avoid such a situation, entrepreneurs must define how much loss they can sustain. > Cut your cloth according to your requirement For example, if you have purchased a product for Rs 100, then you should not stick to it even if the price dives down to Rs 80 or Rs 70. You must make an early exit at the existing price to avoid further losses. Hence, an entrepreneur must set his/her stop-loss in the business. # Earn High Returns in a Low Margin Business There is a misconception that commodity business is a low margin business, with very low return on investment. If you invest a lot of money in business once a year, then it would generate a low margin. But, if you rotate your turnover multiple times in a year, then your overall return will evidently be impressive. For example, if you have invested Rs 1 lakh in a commodity business and you rotate it 10-12 times in a year, then the return on investment will undoubtedly be massive. # Build a Brand in Your Commodity Business > Consumers Moving Towards the Brand A few years back, nobody had thought that one-day edible oil would be sold as a branded product, but now, in India 60%-70% oil consumption comes under the branded segment, whereas countless sugar brands have come on-board. With consumers becoming more and more aware and intelligent, today, the consumer profile in India is shifting from non-branded products to the branded ones, underlining the scope of packaging and branding in India. > Convert Your Commodity Business into a Brand If you are a horse of a long race, then you must go for Commoditized Branding. To convert your commodity business into a brand, you have to build the capacity to stay invested in the business for a longer period. ## Techniques of Branding Since a brand is not built overnight, you need to follow the following techniques to build your brand: - Advertising - Distribution setup - Consumer education - Communication Benefits of Branding: - Gives you a sustainable business model - Gives you a value-addition in the commodity business - Build a Distribution Network Initially, you need not build a pan India distribution network because it will cost you dearly. You can start building your network from the district level and spread to state and then national level. # Benefits of Sugarcane Business This is the only crop that gives the best returns to farmers as compared to wheat, rice and oilseeds. Sugarcane is the only commodity of which everything can be processed and sold. The products produced from sugarcane juice are: - `Sugar` Ethanol Used for the blending of petroleum products - `Wine` Bagasse used to fire the boiler and run turbine due to its high calorific value. # Potential of Sugarcane Business in India Until a few years ago, the sugarcane industry in India had been deteriorating due to the over-regulation by the policymakers. However, due to the novel steps taken by the government, the industry has regained its strength, benefiting both the traders and farmers. The government has also permitted the production of ethanol, one of the most profitable products, from sugarcane juice, which has also proved to be a positive signal for the industry.