How Repurchase Agreements (Repos) Work in Commodity Trading
How Repurchase Agreements (Repos) Work in Commodity Trading
Repurchase agreements help traders unlock cash by temporarily selling goods with a contractual agreement to buy them back. Used properly, they provide short-term financing without sacrificing control over your inventory.
Commodities don't move without cash, and liquidity gaps kill deals before they start. For traders sitting on inventory but low on capital, repurchase agreements—or repos—offer a fast, asset-backed solution. You temporarily sell your goods and agree to buy them back later. The lender gets short-term yield. You get breathing room.
What is a Repo in Commodity Trading?
A repo is a two-part agreement: you sell your commodity to a financier and commit to repurchase it at a future date, usually at a slightly higher price. The financier essentially gives you a short-term loan with the commodity as collateral.
Why Use a Repo?
Repos give you working capital without requiring you to fully exit a trade. Instead of liquidating inventory or borrowing unsecured, you temporarily transfer ownership while maintaining the right to buy it back. The buyer (usually a fund or trading desk) gets downside protection in the form of title or warehouse control.
| Advantage | Why It Matters |
|---|---|
| Fast execution | Deals can close in days with clean paperwork |
| Asset-backed | Minimal counterparty exposure for lenders |
| No personal guarantee | Structured around the commodity, not your balance sheet |
| Scalable | Can be reused across cargoes, seasons, or jurisdictions |
$10M Repo Deal Example
You’re holding $10 million worth of copper in a bonded warehouse. Your end buyer is lined up, but payment isn’t coming for 60 days. You need cash now to secure your next shipment.
Here’s how the repo plays out:
| Step | Action | Amount |
|---|---|---|
| 1. Sale | You "sell" the copper to a fund or lender | $9.5M (95% LTV) |
| 2. Repurchase Agreement | You agree to buy it back in 60 days | $10.1M |
| 3. Implied Yield | Lender earns $600K | Approx. 7.5% annualized |
Do I Need to Own the Goods to Repo Them?
Not fully—but you need to control them. Most repo transactions rely on constructive ownership: you may not have paid your supplier in full yet, but you control the goods through warehouse receipts or purchase contracts.
- Warehouse receipt: proves control, not necessarily full ownership
- Purchase contract: outlines delivery and payment terms
- Title transfer: usually occurs upon repo execution
This structure gives financiers the legal right to take possession if you default. It also gives you legal grounds to repurchase the goods and close the loop.
Risks to Consider
Repos aren't risk-free. While they solve liquidity issues, they come with legal and operational risks if not structured correctly.
- Price fluctuation: Lenders risk losses if the commodity price crashes before buyback
- Title issues: Poor documentation or weak warehouse control can invalidate the repo
- Default: If you can’t repurchase, the financier must liquidate quickly — which can be messy
Where Repos Fit in Your Capital Stack
Repos work best when you have real goods, a short-term liquidity gap, and clear exit timing (end buyer, offtake, or futures contract). They're not a fix-all, but they can give you a clean bridge between delivery and payment.
We Help Traders Structure Repos
At Financely, we build repo deals that work. We handle the legal structure, validate documentation, and connect you to serious lenders who understand the asset class. Whether you're moving metals, energy, or agri, we help you get capital without losing your position.
Need to Structure a Repo Deal?
We help traders and suppliers turn warehouse inventory into working capital. Secure funding. Keep control. Move faster.
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