R Colt Bagley III

Changed the way sugar was traded.

Colt Bagley III is credited with revolutionising the sugar business in the 1970s and is sometimes described as the "Marc Rich of the Sugar Business." I talked with him via video conference from his home in Bermuda and asked him to tell me a little about his life before commodities.

I grew up in Minnesota and attended a military school at an early age. I had learning disabilities, and the small classes suited me better. The school was rough, but athletics was fun. In high school, I realised that I wanted to explore the world. Days after graduation, I joined the Marine Corps, serving three and a half years, including 14 months in Vietnam.

Serving in Vietnam and visiting Japan, Korea, and Australia was eye-opening. I never looked back. I came home and completed the University of Minnesota in three years with a Chinese History and Mandarin degree. I played hockey for the University and had the opportunity to play at higher levels, even in Minnesota. However, I needed less practice time and more academic time in the library to get on with my life. By then, I loved playing hockey for fun, but nothing more.

Did you join Cargill because it was an international company?

I grew up in Wayzata, Minnesota, where the MacMillans and the Cargills lived just down the road. My great-grandfather owned a country grain elevator company with plants in Minnesota, the Dakotas, and Montana. At one point, he was a joint venture partner with Cargill, but he didn't like his counterpart and ended the relationship.

While I was in high school, I worked at the Dakota elevators and the Minneapolis Grain Exchange during summer vacations. After my parents divorced, I didn't want to work for my dad. Besides, I wasn't interested in working for a domestic company. I accepted a position with Cook Industries, which had started trading grain in a big way. However, a friend who worked there warned me against taking it. "We're having trouble," he told me. "There are other places to learn the business. You'll be fine."

I joined Cargill in 1971 and did grains in Norfolk, Virginia, trading corn and soybeans during the Russian Great Grain Robbery. The company executives knew I wanted to work in international trade and offered me a position in the sugar business they were setting up in New York with Rick Frame and Robin Lawson. I stayed with them until 1977, when I left to join Phibro, who were keen to pick up on Cargill's rapid and successful sugar trading model.

How did you transition from grain to sugar?

When I started in sugar, I said, "Okay, let's sit down with a map. Where are the major consumers? Where are the major producers? How many are owned by entities in the business that handle distribution directly?"

At Cargill, I learned that commodity trading is a logistics business involving getting the commodity from point A to point B. However, the real business is trying to create a niche where you can build exclusivity in client relationships. This is how you control profit margins in the trading business.

However, the key to profit and growth in any trading business is a tight and trusting trading team anchored by partners working together. My initial team formed at Cargill and expanded in Phibro with the inclusion of Daniel Kilbert in white sugar and George Testard in raw sugar and grain strategy. We also had an experienced trading team in Geneva with new trainees and Robin Lawson's expertise in managing the hedging positions.

When I started in sugar, Russia bought Cuban sugar, but who else was in the game? There was the US quota, but that wasn't interesting. It was primarily a tender business, and you had to pay top dollar for the supply. Still, countries like the Philippines and Thailand had free and open sellers with whom you could build relationships.

I realised I needed people in each country who understood local conditions. Are the crops good? How is the weather? Is there a problem at the port due to congestion?

Agents are important. Your relationships at origin are crucial because those are the guys who have the problems. And when they have a problem, you've gotta finance them.

Thailand was interesting because you talked directly to the mill owners, which was more personal. Until the government took over, the situation was similar in the Philippines.

Once I learned the business, Cargill could offer clients good logistical and loading terms, premiums for late loading, advance or postponed shipments, and other benefits, such as respect for contract law and contract performance.

Can you give me an example?

We made sales in Romania, but the buyers came to us and said, "Okay, well, we can't take the sugar now." We agreed to extend the contracts and amend the terms. There was a slight premium, but we locked in additional forward contracts for the following years. Suddenly, we had pyramid trades and dominated specific regional markets. We could then focus on originating sources of nearby supply to increase the trading margin.

Later, we did that in Philip Brothers in places like East Germany and Poland. It's how you build up and control the tributary trade flows.

How else did you build the business?

We got the best Brazilian agent, Costa Pinto, and learned what was possible from a Portuguese mentality. We started buying 100,000, then 250,000-mt contracts, then 500,000 mt clips in long-term contracts and then up to one and a half million mt. Suddenly, we had an evergreen contract business source that made us dominant from Brazil to the Mediterranean, the Baltic, and the Indian Ocean.

As the Brazilians converted more from raws into whites, we built up our expertise in white trading. It allowed us to go into Europe, buy restitution (export subsidy) at public EU tenders and add European whites to our trading book. The producers gave us flexibility if we handled the relationships right. Europe became a key origin point in our book, as did Brazil, the Philippines, and Thailand.

We then focused on the destinations. China and Russia had problems when Cuba had a bad crop. The traditional colonial brokerage/trading companies were firmly implanted in Russia, and we couldn't do anything there for a long time. As such, it was essential to build up greater capacity and capabilities that others didn't have.

At Phibro, I met a couple of kids doing a PhD at Columbia. They studied weather and photo imagery, correlating satellite imagery with crop statistics. They needed money to finance their projects, and we funded them twice. They devised a way to digitalise black and white satellite photographs to determine the moisture content, size and density of the crops, the number of husks of corn and the density of the field in terms of productivity. They then compared the results against previous years to produce crop estimates and projections. Phibro financed their degrees and became a client of their information. It is funny how things turned out as Cargill finally bought their operating company many years later.

When I moved to Phibro, I knew I needed an advantage - an edge. I realised that the weather was the key to a strong trading portfolio, and so I went to work on "weather". I studied it every day. The traditional colonial trade houses were full of ex-army guys who had no clue what the weather was like. However, we on the trading desk could see what was happening to the crops in Cuba and Russia. I realised they had a problem ahead of the rest of the market and before it impacted price.

I went to the Russians with our Moscow office manager, Ken Davis, and we showed them the statistical changes in the supply/demand data and our analysis based on the severe weather during that growing season. I sold them a first tranche of 700,000 mt and a second tranche of 400,000 mt.

It also attracted the attention of the Chinese. Richard Elman was our guy in Hong Kong, and we went together to Beijing. We shared our analysis of the beet crop in North China with them there. It showed a significant deficit in sugar beet production, and we eventually sold them 600,000 mt.

The following year, Cuba and Russia had an even worse crop, and I went with a significant offer and long position in August of that year, ready to trade. I hated being that long, but I was 80 – 90 per cent sure the Russians were gonna bite my arm off. After much prep work by our guy in Moscow, I went to see them. They told me they would wait until November or December, when they would have a better idea of their crop, before deciding to buy. They were playing me.

I went home, liquidated the flat price position, and told everybody in the company not to trade a single tonne to Russia. Later, when I was on a trip, one of my partners sold them 50,000 mt. I was furious!

We sold our physical long sugar position to firms who sold to Russia and were desperate to cover the physical sugar. We made a significant profit on those sales.

How important were your partners to you?

Partners are cornerstones. Although they may not contribute financially daily and may never develop an excellent trading strategy, the trading desk and I could bounce ideas off them. They understood the business, our capabilities, and sources and could spot everything wrong with a trading strategy.

George Testard once said that you had a thousand ideas a day. Of these, 999 were useless, and one would go on to make tens of millions of dollars. His job was to discard the 999.

I loved having George in the room because he could analyse anything. He also helped us avoid losing money, a big part of trading.

Why did you leave Phibro?

I got fired three times in my career, not because I lost money but because I was too harsh on people. Yes, I was tough. I was in the office at 6 a.m. and worked until late at night, expecting everybody to work just as hard when the work was there to be done.

While at Phibro, I fired the Chairman's grandson because he was taking extra days on weekend trips to Israel to see his girlfriend. I had warned him that his behaviour was wrong and a poor example for others. I talked to his grandfather, who encouraged me to be strict with him. Still, it was probably a mistake to fire him. I was fired a year later with the Chairman's approval.

Why did Phibro exit the sugar business?

Sugar trading is a logistics business. Phibro failed because they didn't support their origination and didn't appreciate the value added in trading and logistics or the significant value added in the destination part of long-term trading relations. A couple of mills in Guatemala and Costa Rica came up for sale, and I put it in front of them. Phibro said, "No, we don't want to own sugar production assets."

Phibro never got close to the downstream distribution's long-term business potential of developing the trade flow between producers and consumers. They preferred to buy FOB and sell C&F and leave the trade there. I talked to them about ships that could load white sugar in bulk and discharge it in one-tonne or 50-kilo bags. I worked on the project for four years, but Phibro didn't have the entrepreneurial shipping department to take this on. Ex-brokers ran it. They were good. They got time charters and everything else when we needed them, but they minimised risk and never invested in speciality ships to enhance trade to destination clients.

And then you moved to Gill & Duffus.

I did my initial j/v deal with the Chairman, who was looking to buy ED&F Man. I talked him out of it. I told him I could build a similar Phibro team in the US and Switzerland, and we could trade sugar and grain with a line of credit without the massive debt load of buying an existing trading company with bad contracts/debts. G&D liked the idea of trading sugar like they traded cocoa. They were the largest in that sector.

I started with Pat Atkin, the Chair of Gill & Duffus, and we had a great ride, earning more than cocoa one year. Sadly, Pat fell sick and became distracted. When he stepped aside, a financial guy with no understanding or trading experience replaced him. He surrounded himself with cocoa traders he knew for advice and to look over our shoulders. I started to get tough with the cocoa guys. It wasn't going well for any of us. I told them we would find someplace else to go.

Long term, Gill and Duffus didn't have the thrust to develop the business.

Did you ever think about moving to Marc Rich?

I used to talk to Marc Rich all the time, and we got along well. I liked the guy, and I respected him. You could speak to him about everything related to the world, global risk, etc. He understood everything but was always slippery on legal issues, cheating and looking for an advantage to increase his margin.

He wanted to dominate businesses but didn't have a moral code as strict as mine. Because he operated in Switzerland, he would do things that broke the law. He wanted me to work for him. We talked and talked. Finally, one day, I told him that I didn't like the direction he was taking the company and broke off the talks.

So you decided to go into inter-trade brokerage?

My wife and I love London, and we think it's a better place to raise kids than the US. So we put them in school, and they were fine.

After shaking many trees, I wanted to stay visible but keep my hands clean. So, I decided to try brokerage for a while, staying reliant and near the game. However, I thought people would be more accommodating if I helped them with strategy. I even hoped they might include me in their strategies more as part of a parallel relationship.

You then transitioned back from brokerage to trading.

It was the best thing I ever did. I partnered with two Dutch guys, ex-bankers, to create blended sugar products and import them into the EU. We bought sugar in Africa or other localities with preferential duties into the EU, blended it with another project mix, usually cocoa or a citric product, and sold it to chocolate or soft drink companies. Coca-Cola couldn't do business in some parts of Africa, but I could. There was a period in Ethiopia when our blended sugar products were outselling coffee as an export.

I had been in the global trading business but made more money selling one-tonne bags in containers mixed with a bit of cocoa. They were 97.3-5 - 98 % sugar. The margins were huge. With margins like that, you could always make money. You could fall asleep and never worry. We had 5,000 containers afloat at any one time, keeping the business going for 5 or 6 years.

In sugar, like all commodities, we had large price swings that narrowed or widened the difference between world price sugar and preferential EU or USA domestic sugar. At times, countries like Ethiopia and Sudan had to import to export, so when the world price rose above the domestic EU price, the business no longer made sense without hedging and risk management.

I estimated we needed $50 million in credit lines to continue the business and manage a hedging programme, but my partners felt uncomfortable and refused. They were bankers and had a problem with hedging.

Do you still trade?

No.

One of the fascinating things about your career is that you've gone from these mega deals with Brazil, Russia, and China to trading niche markets that nobody notices. Are niche markets the future of trading?

While at Phibro and Cargill, I focused on global trading and was always interested in building supply niches. We did this in the Philippines and Thailand and became Brazil's dominant sugar company.

I learned my philosophy at Cargill, which is based on logistics and supply distribution. But how do you make money in logistics and distribution and then create profit niches and expand them? You enlarge the trading envelope into an exclusive relationship and improve the product ranges.

I wouldn't pay off producers for physical sugar contracts. As a result, I often had problems in many producing countries with single-selling entities. Central America, the Dominican Republic, and Thailand were exceptions.

What were the biggest, the best, and the worst trades you made?

The first Russian sale was my biggest trade. The second Russian sale should have been even bigger, except the Russians played a silly game, and I never traded with them again. So, that was perhaps my worst trade.

One of my most profitable market trades was in the US market. A series of crop failures in Florida prompted the US to import a large amount of sugar under the US quota. I realised there would be too much sugar when the crops recovered, so I started working on a strategy for when the worm turned. I expected the domestic price to plummet and the US government to cut the quotas dramatically.

Over the next 12 months, I bought a bunch of cargoes and stuck the sugar in domestic warehouses. And when the USDA reduced the quota, prices rallied, and we made a fortune.

I could not have done it without Paul Farmer's help. Paul was a young trader who grew up to become a "partner" type of reliable college. He focused on the US market and the prime buyers. He not only improved the strategy of the trading desk but, as had been done elsewhere, started to work with lower-grade raw sugar crystals that were higher in sucrose and had a value close to that of white sugar.

Producers in countries like Mexico were cranking crystals out of the production mills for domestic consumption, but the quality was not good enough for refined industrial sugar markets. Paul saw the merit of getting food manufacturers in the US and elsewhere to modify their facilities to take the crystal raws. This was a win-win situation that significantly boosted our volume and market share.

After I left Phibro, Paul continued to build his business. However, there were all sorts of limitations in the Phibro business model, and he eventually left and set up his own shop. He is still leading the way in US supplies of raw, white and crystal sugars to happy manufacturing companies.

Cargill, Phibro and Gill & Duffus have all exited the physical sugar market. Why do you think that is?

They didn't want to invest in logistical downstream distribution networks.

Sugar is a challenging market. Cargill tried to develop downstream distribution and refining, but they chose the wrong countries. Syria is an example.

When they had the right machine, they never had the right guy to run it. There are umpteen examples of people who have failed to develop their potential in commodities, especially trading.

Would you have preferred to be in the oil market? Would you have made a lot more money in the oil market?

I grew up in a grain family to be in the grain business. I went into the sugar business because it was a speciality business, and it was the first job offered to me to take me abroad. But it was within a grain company. Some people argue that Cargill revolutionised the sugar business. Once in sugar, I wasn't moving back to grain.

What advice would you give someone joining the commodity trading sector today?

Preferably, have an education and training in engineering. Be a problem solver. Read books. Read history, study geography, study raw material and product development, where imports are needed in net deficit countries, and study weather. Weather is everything if you're in soft commodities. It'll tell you everything. And it doesn't hurt to take a class or two in law. Every trading department needs someone who is legally trained.

You need filters in trading, people to filter your ideas. Strong partners can be the best. That's why, for me, partnerships are the key to good trading companies. If you start trading today, get a strong partner or two with money and limit your risk.

Big corporations are unreliable. I got frustrated in the big companies because I never knew whose hand was on the tiller. I took my frustration out on the young people on the trading desk. I was mean to them and got fired for it. I made mistakes like all people. I was hard to get along with, which is my solid regret.

When starting a business, always look for a trading advantage. Start slow and small, and get your training in a niche business.

Finally, you've gotta go find yourself because, ultimately, it's your trade.

© Commodity Conversations® 2025