Food for thought

Low prices and thin margins continue to make for hard times in the agricultural trading business.

This week Archer Daniels Midland Co announced that their quarterly earnings had fallen 44 percent. The company handled 20 percent less grain than expected and average margins in the United States were 50 percent below expectations. The company’s CEO said that he will reduce capital spending next year by about 20 percent and reallocate funds away from oilseed crushing towards its higher-value businesses. However he added said he didn’t expect conditions to get better any time soon.

Bunge Ltd has forecast lower full-year earnings in its core agribusiness unit after posting a third-quarter profit that fell 28 percent on flat revenue. The company’s CEO was, however, optimistic about the future. He said that the company’s trading and processing next year would benefit from cost cutting and strengthening demand for oilseeds, a key driver of revenue. He added, “The third quarter was better than the second and the fourth quarter will be better than the third.”

The CEO of ED&F Man is leaving the company as part of a senior management reshuffle after “a very challenging year”. The company said that the move was part of a restructuring driven by difficult market conditions in its sugar business.

Mackprang jr. GmbH, a Hamburg-based trading house founded in 1878, is venturing into the consumer breakfast market in search for higher value businesses. The company said it will source oats, corn and raisins, then mix and pack them before shipping out to China. The company’s managing director said, “Being a grain trader is no more the place where you make your money so easily. Definitely not. Times are changing and we have to look for other opportunities.”

But at least one trading company is looking to expand during these tough times.   Sucafina, the Swiss-based coffee trader, has hired about 50 people in the past year, opened offices in Colombia and Brazil, reorganized its North American unit and is starting a business in Seattle. The company has taken out a $300 million 18-month syndicated loan to fund its expansion.

The company’s CEO told Bloomberg, “I like to consider Sucafina the smallest of the big trade houses or the biggest of the small trade houses. If we were content to stay at this size and we weren’t vertically integrated, we would eventually get acquired by someone.”

Goldman Sachs Group Inc. is also expanding their commodity operations during tough times, hiring traders from Morgan Stanley and Castleton Commodities. To be fair, though, the expansion seems to be more in energy and metals, rather than agriculture.

It is not just commodity trading companies that are facing headwinds; agricultural chemical companies have also been in the news this week.

US farmers have overwhelmed state governments with thousands of complaints about crop damage linked to weed killers that use a chemical known as dicamba. Farmers claim that the herbicides have harmed crops because they evaporate and drift away from where they are applied. Monsanto and BASF, who make the herbicides, say the herbicides are safe when properly applied.

One expert estimated that 3.1 million acres of non-targeted crops have been damaged by the herbicide. In Monsanto’s defense, the company says it investigated 1,000 such claims, and found that in 88 percent of those cases, the farmer was to blame for faulty application of the product because “the label was not followed.” However, as New Food Economy points out, the “label” is 4,500-words long.

Meanwhile, The New York Times has accused President Donald Trump of damaging people’s brains, not by his angry early morning tweets, but through his lack of action on the chemical pesticide chlorpyrifos. The newspaper claims that the chemical is found in food, air and drinking water, and that human and animal studies show that it damages the brain and reduces I.Q.s while causing tremors among children. The Environmental Protection Agency banned the pesticide for most indoor residential use 17 years ago, and was preparing to ban it for agricultural and outdoor use this spring, but the Trump administration has apparently rejected the ban.

Campbell Soup has announced it is joining the Plant Based Foods Association, acknowledging reduced consumer demand for meat and dairy food. Earlier this year the company left the industry’s top trade and lobbying group, the Grocery Manufacturers Association, citing the lobbying group’s opposition to labeling whether food contained genetically modified ingredients.

The PBFA counts more than 80 companies as members but Campbell Soup will be by far its largest., “We’re not trying to make the whole world vegan,” a spokesman for the association told Bloomberg. “All we’re doing is trying to make plant-based products available to more people.”

In a similar vein, McDonald’s Corp have announced that they will require suppliers to follow new standards for raising and slaughtering chickens. Under the new guidelines, suppliers such as Tyson Foods Inc and Cargill Inc must comply by 2024 with rules dictating the amount and brightness of light in chicken houses, provide birds with access to perches that promote natural behavior, and take other steps to improve animal welfare. Tyson and Cargill have said that they support McDonald’s moves.

And while we are on consumer trends, people are abandoning their supermarket trolleys for baskets. The annual Waitrose Food & Drink Report (which covers all UK supermarkets), reports that customers are increasingly shopping little and often. One in ten people buy what they are going to eat that night, on the way home from work. Two out of three go to the supermarket more than once a day. As the report puts it: “People treat supermarkets like giant walk-in fridges.”

Nestlé, Mars and Hershey have been accused of breaking pledges to stop using “conflict palm oil” from deforested Indonesian jungles. The Rainforest Action Network (RAN) says consumers have been “deceived” by promises from the brands to clean up their supply chains, which were subsequently delayed, revised or watered down.

Hershey’s communications director responded to the allegations by saying that, “While we remain deeply committed to pushing all stakeholders to accelerate traceability and bring full transparency to this supply chain along with our supplier partners, we realise it would take more time to achieve this goal than originally anticipated.”

Meanwhile Malaysia is bracing itself for a total ban on EU imports of palm oil as the European Parliament gears up to ratify a proposed resolution to ban palm oil imports. The European Parliament has already voted to phase out the use of palm-oil biodiesel by 2020. After India, the EU is Malaysia’s second-largest export market for palm oil. China is in third place.

Author: Jonathan

After 37 years as a commodity trader and analyst, Jonathan Kingsman is now chairman of Bonsucro, a non-for-profit organisation that promotes environmental sustainability and human rights within the sugarcane sector. Jonathan is married with four grown up children and lives in Lausanne Switzerland. He is the Editor of The Sugar Trading Manual and author of The Sugar Casino. Godstone is his first novel.

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