Commodity Conversations Weekly Press Summary

The global demand for livestock and feed is expected to recover in 2020 when China will have gone through 5-months production worth of meat in cold storage – a direct result of the African Swine Fever (AFS) culling. The analysis by S&P Global Ratings argued that this will help the bottom line of trade houses which have been hurt by the AFS as well as the US-China trade war, especially companies with strong exposure to US origination. In the absence of any major consolidation, agricultural trading groups are expected to continue to look at divesting unprofitable assets, as is already the case for Bunge and ADM for their sugar and ethanol business units. 

BP and Bunge are still waiting for antitrust approvals from three countries, including China, for their joint venture which they hope to finalise this year. Bunge reported a loss of USD 1.5 billion for the third quarter, compared to a profit of USD 365 million the previous year. This includes a USD 1.7 billion charge following the merger of its Brazilian sugarcane business with BP. Good results in South America and in its edible oil segment were insufficient to offset the damages caused by the ongoing US-China trade conflict. In the hope of a resolution in the conflict and higher prices, US farmers have been withholding crops, especially soybeans. The CEO forecast that annual earnings would drop as much as 20% compared to last year. 

Another country where farmers are holding on to their crop is Argentina where producers are eagerly waiting for the newly elected President to explain his policies on agriculture, especially exports. There is a concern that he will increase taxes on grain exports and even bring back export quota limits. Farmers told Reuters that a return to these populist measures would hurt revenues, adding that the last time quotas were implemented wheat and corn planting collapsed. Some say the country could implement a dual exchange rate to help agriculture exports compete thanks to a weaker currency. 

In neighbouring Brazil, Cargill is pushing for the soybean industry to capture more of the value chain and focus on exporting processed products such as meal and soy oil. The call was echoed by the country’s vegetable oil association which pointed out that, ironically, the share of soybean exports stood at 81% of soybean products exported in 2017, compared to 13% back in 1981, when 87% of exports was in the form of meal. In Europe, meanwhile, Cargill announced it was putting USD 35 million in a product line to produce soluble fibres which can reduce sugar content in confectionery products by 30% without affecting the taste or texture. 

Olam Cocoa launched its Cocoa Compass initiative this week which sets targets aligned with UN Sustainable Development Goals. Among the commitments, Olam is aiming to eradicate child labour and deforestation by 2030. It will also work towards improving farmers’ incomes and has agreed to pay the Living Income Differential (LID) premium of USD 400/mt on 100,000mt of cocoa it bought from Ghana and the Ivory Coast. In the US, meanwhile, several industry groups, including Coca-Cola, are warning that the Ninth Circuit Court’s decision to hold Nestle liable for slavery in cocoa plantations in Ivory Coast could actually discourage companies from trying to tackle the issue.

A Greenpeace plastic waste collecting initiative in two areas in Thailand found that most of the waste came from single-use plastic from food packaging and that close to 20% of it was produced by five multinationals: Coca-Cola, Nestle, Ajinomoto, Mondelez, and Unilever. Italy is trying to deal with the issue by proposing to tax plastic in its 2020 budget at a rate of around USD 1/kg. A source told Reuters that the tax, if approved, would bring in over USD 1 billion and would help offset a cut in income tax. Unsurprisingly, beverage companies are opposing the proposal saying it would hurt their bottling operations, especially considering that the budget also includes a sugar tax. 

On the subject of bottling, The Guardian reported this week that conservation groups continue their fight to stop Nestle from accessing water in California’s Strawberry Creek. They accuse the group of depleting water levels and hardly paying for it while selling the bottled water at a profit. At the heart of the fight is a debate about who should control freshwater supply on public land, with Nestle’s former CEO arguing that it needs to be privatised. 

An analyst at Forrester Research forecast that the global food delivery market will likely go through major consolidation in 2020. Although the largest firms managed to raise significant funds in 2019, none reported a profit. Uber, DoorDash and Amazon are seen as the most likely to make acquisitions in the market. 

As China is busy eating through its stocks of meat, Russia quietly became Europe’s biggest importer of cows. This is the direct result of Russia’s policy to modernise its dairy sector, incentivised by the ban on imports of foreign dairy products. As of 2018, the country was 20% shy of being self-sufficient, mainly because a third of milk consumption is still supplied by low-yielding household cows. By 2027, however, Russia hopes to export to China and other Asian countries.

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