What are the biggest challenges currently facing the grain merchandising industry?”
In the 2000 to 2010 boom the industry built up too much capacity, too many silos. Farmers around the world have also built storage capacity. Their need for merchants of grain to store commodities, and to take them off their hands at harvest time has become less. That is a significant change that challenges intermediaries such as ourselves. We need to add value to the farmers in a different way than we have done in the past.
Another challenge that we face is government intervention; the current trade conflict is an example. Tariffs and import and export bans make it harder and more costly to move food around the world. They lead to inefficiencies and extra costs.
Ian McIntosh, the CEO of Dreyfus, recently said, “One tweet and everything changes.” Traders need volatility, but they like volatility that is at least partially predictable.
If you trade you need price volatility. If the price doesn’t move, you can’t make money. You might not lose either, but not losing isn’t enough to stay in business. By definition traders require volatility.
However, unpredictable political volatility increases risks and costs. It becomes a casino, and then it becomes gambling rather than trading. There have been a lot of market impacting tweets. That has made trading difficult in the past year.
But one thing I would say is that our global scale has helped us to find solutions. Recently, trade tariffs have made it more expensive to supply US beans to our buyers in China, but because of our global scale we have been able to supply Brazilian beans instead. We couldn’t do that without global scale. If you were a small regional player in the US you would have been caught in that.
Can grain merchants still add value, or can the market now do without intermediaries?”
There are a lot of myths around the grain trade, that traders just make money hand over fist, that they are making huge amounts of money on the backs of farmers and consumers. It is not true. In reality, margins are very thin in the agriculture sector.
On the plus side, pressure on margins means that we are constantly looking to make the systems more efficient, to cut back costs, and to make sure that our agricultural products are moved in the most cost effective and efficient way.
So yes, there is a need for intermediaries as long as they can continually reinvent themselves to add value. We have to differentiate ourselves from our competitors and to add value on both ends of the spectrum, at origin and at destination. If you cannot add value, then there is no reason for you to be in business.
Is traceability compatible with tradability?
I don’t think traceability necessarily kills tradability, but it clearly restricts it. You end up with an IP (Identity Preserved) product. It is a value added product that is not really exchangeable. A commodity is a commodity because it is exchangeable. An IP product requires segregation; it is not a standard product.
Our objective within Cargill is for all products to become sustainable. Once that happens the distinction between traceability and tradability no longer exists.
How has Cargill changed since you joined?
At its core, the company has not changed. We are still a values-driven company where ethics and compliance is at the top of who we are. That has not changed over 150 years and I don’t think it will ever change. It is a family requisite. The Cargill family cares about the company, about passing on to the next generation, and that will only happen if we take care of the company in an appropriate manner.
Cargill has however changed from a portfolio perspective. When I joined in 1987 we were still predominately a trading company. The trading part of Cargill is still a critical part of the company. We still have an active trading business. We trade actively around our assets. We are a major supply chain manager. But we have also diversified our portfolio into the value-added products. We have invested heavily into animal feed, into the meat businesses, into starches and sweeteners, fermentation. That has diversified the revenue streams, but it has also allowed us to capture margins in the downstream supply chain just as the margins in trading were under pressure.
Chris Mahoney, the CEO of Glencore Agriculture, told me that something like 15 percent of his company’s revenue comes from trading and merchandising.
It is difficult to put an exact number on it, and trading is an art not a science; it varies from year to year. We still have a huge amount invested in people and talent to trade and position in the market place, and I would guess that it is larger than our competitors today. Nevertheless, the trading side of Cargill relative to the rest of Cargill is now less than it used to be. That is simply because our portfolio on the value-added side has grown significantly.
What makes Cargill different from other merchandising companies – what is your USP?
I am not going to talk about our competitors, so I will answer that question in terms of what I think we are good at.
Number one is our exceptional talent—our people. Number two is that we are truly global as a company; we have good assets in all the key geographies, whether at origin or destination. Number three is the way that the different businesses within Cargill work together. Number four I believe we can differentiate ourselves by the importance we place on our relationships with customers and suppliers. We work with our end users and our suppliers to adapt to their changing needs.
Would you recommend young people to become traders, to join Cargill?
You are asking someone with a fascination for markets and trading, so yes I would recommend anyone to become a trader. Trading will never disappear. We manage risks, and those risks will never disappear. There is risk all along the agriculture supply chain and that risk has to be managed. To manage risk you have to understand the marketplace.
To take that one step further, you go beyond simply risk management into trading opportunities, where you see something that the market is mispricing, and you seek to profit from that. That is how markets work. It is a fascinating business. You have global forces at play.
There is now greater need to understand mathematics and mathematical models than in the past. Data science is becoming increasingly more important. I joined Cargill before the Internet existed. And I studied law, not mathematics. But I guess I must have some ability at maths, otherwise I wouldn’t be where I am today.
So you need to be strong in mathematics now to be a good trader, and that is not for everyone.
You also need to be able to manage stress. Your job should not be at the cost of your health. It is a tough environment. A lot of people come and go. It is performance driven culture, if you don’t perform consistently you will be replaced. You are always at the cutting edge. Performance is quick to come and go.
Cargill is often viewed as a training programme for the industry. How do you feel about that—and how do you manage it?
I have mixed feelings about that. In one sense it bothers me. Through our training we are obviously feeding our competitors with talent. But at the same time I am proud that we recruit and train people so well. That tells you a lot about this company and the way we invest in our people. I think that is a good thing.
But frankly there is no choice at the end of the day. We are a pyramidal structure. People are promoted on merit, and there will be people that fall out of that system. Our objective is to maintain our strongest talent. We don’t always succeed. But not everyone can make it to the top, so there will always be people that seek other opportunities. I think that is ok. It is the way the system works; it is inevitable.
What would like to read about in a book about the grain trade?
The grain trade plays a vital role in the agriculture sector and I think that story needs to be told. The industry has a stigma that is hard to lose but the key is transparency. We have to show we are doing good, but we also have to admit to our challenges and vulnerabilities. I am proud of the way that Cargill has evolved. We tell our story in good faith. We have very strong values, and we are in the business for the long run.
To feed a growing population we have to make sure that our farmers receive a fair payment for their crops and that they thrive. But at the same time we need to care for the planet. We don’t want any further deforestation. There are paradoxes that we need to manage. We are in the middle of this and want to play a role. There are a lot of conflicting issues to be managed. We cannot ignore one away in favour of another. They need to be handled and met at the same time.
Thank you GJ for your time!
The full interview will be published in my upcoming book, “Out of the Shadows: The New Merchants of Grain.”
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