jonkingsman

May 25, 2021

Weekly News Summary

In what some commentators suggest might be the beginning of the end of the recent commodity boom, the Chinese government is tightening credit in the domestic market. It has also announced a ‘zero tolerance for monopoly behaviour’ in the spot and futures markets and the ‘hoarding’ of commodities’. The moves are likely to impact the oil and metals markets more than agriculture, but they could make it harder for the country’s smaller agricultural commodity importers.

Even so, China has already bought 8.2 million tonnes of corn for 2021/22, nearly one-third of their expected new-crop corn purchases.

Thousands of people attended the funeral last week of Yuan Longping, the Chinese ‘Father of Rice’. Yuan, who did for rice what the Nobel prize winner Norman Borlaug did for wheat, developed the world’s first commercially viable hybrid rice varieties in 1973, saving millions of people from starvation.

Indonesia’s plans for food self-sufficiency by increasing rice acreage have raised worries over increased GHG (methane) emissions.

California’s drought was in the news again last week, with almond farmers looking to uproot older trees to save water for younger, higher-yielding trees. Water shortages were also a topic in France where citizens accuse Volvic, the mineral water bottler, of drying up rivers and lowering the water table.

Britain’s heir to the throne has stepped into the debate over renewable agriculture, emphasizing small farmers’ role in rural communities and ensuring a sustainable supply chain. The EU agrees. It has announced plans to reform its current subsidy schemes to halt the decline in the number of small farms. The EU agriculture commissioner said: “The European food sector in the past was based on small farms, and it should be in the future as well.” *

Moving in the opposite direction (as usual), the UK is on the verge of signing a trade deal with Australia that critics claim will push the UK’s small livestock farmers into bankruptcy.

The first shot has been fired in the next ‘food versus fuel’ war with an article entitled ‘Global Food Prices Soaring as Demand for Biofuels Continues to Climb’. We expect to see many similar articles in the months ahead. (However, the award for the most alarming headline of the week goes to Bloomberg with ‘Cannibal Mice Plague Threatens Sydney Homes and Australian Farms’.)

Argentina’s port workers went on strike last week over work conditions and pay, temporarily interrupting grain and oilseed shipments. Water levels in the Parana River continue to drop, reducing the draft and limiting the tonnage loaded on each vessel in Rosario.

Lamu, Kenya’s new Indian Ocean container port, began operations last week. Once finished, the port will have 32 berths.

An Egyptian court has refused an appeal by the owner of the Ever-Given container ship to let it leave the country. The Suez Canal Authority claims more than $900 million in damages, while the vessel’s owners have offered to pay $150 million.

In bad news for fish eaters, a recent study has found that fish are less carbon-friendly than previously thought. The study found that bottom trawling emits about the same amount of carbon dioxide globally as the aviation industry. Salmon farming is environmentally friendlier.

Bloomberg reports that Cargill made almost $4.3 billion in net income during the first nine months of its fiscal year, surpassing its best-ever total annual profit.

A planned €150 million cheese factory in Ireland has hit the headlines as Dutch dairy manufacturers try to bypass limits on the size of their herds by outsourcing production to other countries.

Bowery Farming, an indoor-agriculture company, has raised $300 million in a funding round that sets its value at $2.3 billion. It brings the total raised by the company to $472 million.

US President Biden is taking a careful approach to the livestock industry’s GHG emissions. In an interview with the BBC, John Kerry, the President’s environment tsar, said that the US government would not tell Americans to eat less meat. He said, ‘there’s a lot of research being done now that will change the way meat is produced, cattle are herded and fed’.

Australia’s meat consumption is the lowest it has been in the past 25 years, primarily driven by a reduction in pork consumption.

Chinese wholesale pork prices have plunged more than 40 per cent this year on slow demand, increased imports and panic selling by domestic farmers after fresh outbreaks of African swine fever.

For ADM’s take on the future of plant-based protein, take a look at this Bloomberg interview with the company’s CEO.

It seems that everyone wants to revolutionize agriculture. Greta Thunberg has taken up the cause. The Rockefeller Foundation has launched what they call the ‘Food Systems Game Changers Lab’, inviting ideas, initiatives and innovations for change in the way food systems operate. The Foundation will present the best ideas at the UN Food Systems Summit in September.

Some would argue that agriculture and food distribution systems have been in a state of permanent revolution for the past half-century, if not longer. Artificial Intelligence is another stage in that revolution.

* Jason Clay from the WWF once told me: “We have a lot of well-meaning people who’ve never set foot on a farm but have strong opinions about maintaining small farmers, and by extension, whether they realize it or not, poverty.”

May 23, 2021May 10, 2022

Assets are essential – Raul Padilla

Raul Padilla is President, Global Operations, Bunge. He was previously CEO of Bunge South America, having served as Managing Director, Bunge Global Agribusiness and CEO, Bunge Product Lines since 2010. Bunge is the largest oilseed crusher in the world, with about 10 per cent of global capacity.

Good morning, Raul. Could you tell me how you got into commodities?

First of all, I have to tell you that this is a particular time for me. After 44 years in the business, I am taking my retirement at the end of this year.

I started my career in 1977 when I joined a trainee program with an André company in Argentina. After an initial training period, I began as an assistant oilseed trader, working on trade execution, finance and shipping. I then became a soymeal trader on the domestic market. Later, I was in charge of the soybean oil exports to Latin America, after which I spent two years at André’s head office in Lausanne, Switzerland.

Did you stay with André?

I left André within a couple of years of returning to Argentina and moved to a locally owned oilseed crusher, Guipeba, as commercial director. In 1995 Ceval, a large Brazilian company bought Guipeba and, in 1997, Bunge bought Ceval. It was almost a reverse-takeover. I became CEO of Bunge’s Argentine operations in 1998.

When did you join Bunge’s executive committee?

In 2001, when we did the IPO. At that time, we were a confederation of companies and countries that lacked structure. It made it difficult for everyone to work together. It became evident that we needed a marketing arm to bring together all our physical origination/production and destination operations.

We looked at various options, including merging with one of our competitors. We talked at length with Dreyfus, but we eventually decided that we would be better on our own. I helped A. Gwathmey, Bunge’s Ag. Product Line CEO at that time, put together a consolidated and central marketing arm. We opened trading offices in Geneva and elsewhere.

In 2010, I moved to White Plains to become responsible for Bunge’s agri-business segment, where I integrated the different divisions and companies within the company. I did that for four years, but I grew weary of the corporate side of the business. I like to run an operation and be part of the day-to-day action. So, in 2014, when the CEO of Bunge’s Brazilian operations (Pedro Parente) decided to leave the company, I asked to replace him.

Brazil is – and always has been – an essential piece of Bunge. It has been almost half of the company. In 2014 we had three divisions in Brazil: sugar, agribusiness, and food and ingredients.

Tell me a little about Bunge’s decision to go into sugarcane.

I was not in favour of Bunge going into sugar. I didn’t like it, not because I knew the sugar business, but because it made us farmers – and farming was not our business. Sugar is eighty per cent agriculture. Bunge is not an agricultural producer; it is a merchant and processor.

Anyway, that’s history, but I ended up being responsible for Bunge’s sugar and bioenergy operations until we merged it with BP in 2019. I continue to sit on the board. We have a great partner in BP, and the team is doing an excellent job with the combined business.

Were the other businesses working well?

Our results were not what they should have been, and we decided we needed to make another adjustment. In 2017, we split operations into three regions: South America, North America, and Europe and Asia. I took the responsibility to integrate the South American functions. However, we were still not performing as well as the shareholders and we wanted.

So, at the end of 2018, we shook the tree again. Greg Heckman took over as CEO, and the company made changes in the board. Everyone knew that we had to do things differently. We had to change the way we were operating throughout the whole company. I like to describe it as ‘pushing the reset button’.

Does that mean you are now doing less trading and more merchandising?

We manage the mismatch between farmers selling and consumers buying. Addressing that mismatch forces us to have a market view. Sometimes the supply chain will give us a structural margin that we can lock in without thinking about it, but it doesn’t happen every day. There is risk in each of our supply chains. As part of our company reset, we have changed the way we managed risk.

Are physical assets important to trading?

They are essential. You need physical assets to receive, store and process agricultural commodities. You can’t be in the business without physical assets. Processing is critical in soybeans as you can either sell beans or process them into oil and meal. And as you move down the supply chain, you can market the oil in retail bottles or, for example, for biodiesel. We have 35 per cent of the packaged oil market in Brazil – a vast number of bottles!

If you are a grain exporter, you can buy and sell corn, but most importantly, you have the option to do nothing – to neither buy nor sell. You don’t have that luxury in an oilseed supply chain. Capacity utilisation is essential to efficiency. We at Bunge process 45 million tonnes of oilseeds each year. You cannot say, ‘OK, I do not see things clearly; I will step out of the market for a while.’ That doesn’t happen when you manage a crush operation.

People sometimes accuse trading companies of controlling markets.

The only thing that trading companies can control is their cost structure and risk appetite; that’s all.

Moving on to biofuels, is renewable diesel an opportunity – the next big thing?

It is at the centre of the strategic discussions in the industry.

Biofuels fell out of popularity when food prices rose in the 2000s, and there is a danger that history will repeat itself. I fear that food inflation and the food versus fuel debate is going to resurface. We won’t be able to avoid it, although the focus on climate change and sustainability will change the dialogue from last time.

In addition to the food versus fuel debate, the amount of CAPEX required to make a significant bet in the renewable diesel sector is substantial. It’s a big cheque, and you have to be pretty sure of what you are doing and the projected returns.

So yes, renewable diesel is a big thing – a significant factor that we have to consider. We will not rush in; we don’t have all the answers, but we are doing the work as things develop.

Are you worried about peak meat?

We are following this constantly, and the company has invested in alternative meat companies. We did so partly to help us better understand the changes in consumer demand and as an investment in an expanding sector. We debate meat demand constantly – at every commercial discussion.

How has trading changed since you have been in the business?

Today, everyone has access to the same information, real-time on their phone. It is how you interpret the data that is important now, rather than the data itself. We used to have better information, but now we all have to analyse the same information faster and better.

Now everything is immediate; we have instant communication with customers and suppliers. We also have quick access to our colleagues. Over the past year, due to the pandemic, we have all been working from home, connected by technology. We have run a global processing and trading business from home. It is an extraordinary achievement that demonstrates how the world has changed. It is incredible how things have changed so fast.

Would you advise a young person to join the industry?

Absolutely. Our business is never dull. It changes from hour to hour and even from minute to minute. You can have one scenario in the morning and a completely different one in the afternoon. You have to rethink everything.

You will never be bored, but you will have to be on your toes 24/7.

Thank you, Raul, for your time and input!

This is a short extract from an interview that I will include in my upcoming book ‘Commodity Crops – And The Merchants Who Trade Them.’

May 19, 2021

Weekly Press Summary

Researchers at Aalto University in Finland have warned that a third of global food production will be at risk by the end of this century if greenhouse gas emissions continue to rise at their current rate.

As part of a recently published roadmap on reaching net-zero carbon emissions by 2050, the International Energy Agency (IEA) has called for a 60 per cent increase in the use of energy from biomass. The IEA says that this will require an additional 410 million ha of land under crops but argues that farmers can achieve this by using currently unproductive marginal land.

Farmers in Brazil’s Centre-South region are concerned that, they may run out of water to irrigate their coffee and orange juice trees if the current drought continues. Analysts are already marking down sugar cane production but expect the lack of rainfall to impact ethanol more than sugar. Drought is also affecting farmers in some areas of California.

After a blocked Suez Canal and a hacked pipeline, a crack in a road bridge near Memphis, Tennessee, has highlighted the fragility of global supply chains. Authorities closed the Mississippi River for four days, blocking more than 60 vessels and 1,000 barges, before reopening it last Friday.

In Australia, a plague of mice is creating havoc across New South Wales and Queensland, contaminating grain stocks and threatening new crop planting. Farmers are concerned that the mice will eat newly sown seeds before they can germinate.

China is looking to join the CPTPP, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, and has already held informal talks with member nations. The CPTPP is the successor to the Trans-Pacific Partnership. The US is also considering (re)joining.

Oatly, a plant-based milk company, plans to raise $1.65 billion in their IPO this week: $1.1 billion in new shares and the rest from current investor share sales. If it succeeds, the IPO will value the company at $10 billion, five times more than at the time of its most recent round of fundraising last year.

Cofeed, a Chinese agricultural data provider, has suspended operations without explanation. Traders relied on Cofeed for data on China’s soybean and soymeal stocks, crushing volumes, crushing margins and corn pricing.

Vicentin, the cash strapped Argentine soy crusher, is talking with Viterra, Molinos Agro and the Argentine cooperative ACA to sell a majority stake in the company. Vicentin owes more than $1 billion to banks and farmers. Still in Argentina, the government has banned beef exports for one month to dampen an inflation rate approaching 50 per cent.

The US ethanol producer POET is in talks with Flint Hill Resources to purchase the firm’s six ethanol plants with a combined capacity of 800 million gals/year. The purchase would increase POET’s total capacity to 3 billion gals/year.

Ivory Coast has asked the EU to be flexible when it introduces new legislation later this year to remove deforestation and child labour from the cocoa supply chain. Ivory Coast has asked the EU to phase in the measures over five years. The EU buys almost 70 per cent of the Ivory Coast’s cocoa. However, in a good news story, Ivory Coast’s cocoa farmers are finding increased demand in the EU for organic cocoa.

A Seattle-based start-up is developing fake coffee made from sunflower seed husks and watermelon seeds. The company says that the resulting grounds are brewed just like a regular cup of coffee and contain caffeine. (I think I will stick with the real thing.)

Meanwhile, Canadian coffee lovers can now appreciate two unusual (real) coffee varieties: Liberica beans from Malaysia and Racemosa from South Africa.

In a ‘Farm to Face’ situation, Global Bioenergies has launched a range of cosmetics made from sugar beet residue. Meanwhile – in what could be called ‘Root to Race’ – some Formula One teams are pushing for a delay in an increase in the sport’s use of ethanol.

US households are consuming less cow’s milk. Sales dropped by 12.2 per cent from 2013 to 2017, the latest year data is available. The sales of plant-based alternatives such as almond and soy milk increased by 35.7 per cent over the same period.

Meat producers are worried that beef is the new coal. As previously reported, the Boston Consulting Group has forecast that meat alternatives will make up 11-22 per cent of the global protein market by 2035. A recent Kearney study has projected global meat sales to peak in 2025 and decline by 33 per cent by 2040.

Finally, two of Bloomberg’s top commodity journalists have written an opinion piece in the NY Times calling for increased government regulation of physical commodity trading. The article focuses on resource extraction in the oil and mining businesses, but it also contains the somewhat surprising misstatement that seven trading companies supply half the world’s food. As I wrote in my book – Out of the Shadows, The New Merchants of Grain – seven trading companies account for half of the world’s shipborne trade in grains and oilseeds, not half of the world’s food.

May 11, 2021May 11, 2021

Weekly Press Summary

The FT reports that the rising demand for commodities is having a dramatic impact on bulk freight rates. The Baltic Dry Index has risen to its highest level in more than a decade, soaring over 700 per cent since April 2020. Capesize rates have nearly doubled in the past month and are almost eight times last year’s average.

Although grain prices are rocketing to the moon, rice is being left behind on earth – good news for the more than 3 billion people that rely on the crop for most of their daily calories. Good harvests in Vietnam, Thailand, and India have helped keep prices relatively low. Also, as Bloomberg points out, rice is grown mainly for human consumption. In contrast, the surge in crop prices has been driven by China’s booming demand for livestock feed.

Road blockades and anti-government protests in Colombia have stopped coffee from reaching the country’s ports and halted exports during their main harvest. Nearly 50 people have died in the protests.

Still in Colombia, the country’s Coffee Growers Federation has identified six new subspecies of coffee leaf rust in the country, plus nine new variants of the fungus. Although approximately 84 per cent of Columbia’s coffee trees are disease-resistant varieties, the FNC is worried that the disease is constantly mutating.

The CME is closing – or not reopening – its last few remaining agricultural trading pits in Chicago. The Exchange had already replaced all futures transactions with electronic trading but kept its options pits open until March 2020, when it closed them due to Covid-19. The trading pits in Chicago date back 173 years; it is the end of an era.

ADM plans to build North Dakota’s first-ever dedicated soybean crushing plant and oil refinery. The plant will cost approximately $350 million and, once completed, can process 150,000 bushels of soybeans per day. ADM expect to complete the work in time for the 2023 harvest.

Cargill is expanding further in the gourmet food sector and has acquired Belgium-based Leman Decoration Group, a cake decoration company. Leman Decoration’s R&D hub is near Cargill’s House of Chocolate complex due to open in early 2022.

Glencore Agriculture in Australia has rebranded as Viterra in line with last year’s global rebrand. Viterra Australia has 800 employees and operates six ports in South Australia and one in western Victoria.

Bunge has announced that they are opening Vector – their Brazilian logistics and trucking platform – to outside companies. Vector is a joint venture between Bunge and Target, a logistics company. Bunge has been using the Vector app to digitize their in-house domestic grain trucking. Meanwhile, Bunge’s shareholders have voted for the company to evaluate and disclose its efforts to eliminate deforestation from its supply chains.

Unilever’s shareholders have voted to reduce greenhouse gas emissions “as much as possible” across the company’s supply chain to reach net-zero by 2039. Unilever plans to achieve this by focusing on reducing emissions rather than purchasing and retiring carbon credits.

Competition heated up in the alternative milk sector last week when Nestlé launched a new plant-based milk product called Wunda (nothing to do with the 1988 film, The Fish Called Wanda). Nestlé will make the drink with yellow peas, and they describe the product as “epic in everything”.

Nestlé is targeting Oatly, the “Wow! No Cow!” oat milk company that recently filed for an IPO in the US that may value the company at $10 billion. In July 2020, Oatly raised $200 million from a group of star investors, including Oprah Winfrey, Natalie Portman and former Starbucks CEO Howard Schultz. At the time, the Wall Street Journal valued the company at $2 billion.

The FT takes an in-depth look at the global battle for plant-based milk. They suggest that protein content may prove key. Nestlé’s Wanda will contain 2.2g per 100ml compared to Oatly at 1g per 100ml. Cow’s milk contains 3g of protein per 100ml.

Reducing GHG emissions is one of the main arguments in favour of plant-based proteins. The FAO says animal agriculture is responsible for 14.5 per cent of global greenhouse gas emissions. Still, a new paper in the Journal of Ecological Society argues that once you include the impact of deforestation, the figure is closer to (a hard to believe) 87 per cent.

Argentina’s Environment Ministry has launched a “Green Mondays” campaign to encourage citizens to substitute meat with plant-based proteins. At 22 per cent, Argentina’s cattle ranching industry is the most significant contributor to the country’s greenhouse gas emissions. Argentinians eat an average of 49kg of beef per year, almost twice the amount that their US neighbours eat each year.

Rolling Stone Magazine has listed eleven foods that our changing climate is already affecting. Wheat tops the list, but coffee, corn and rice also feature. A researcher from the International Food Policy Research Institute says, “It’s a race between innovation and the impacts of climate.”

But if we want to save the planet, The Guardian argues that insects are the future of food – if not for ourselves but for pet and animal feed.

Cargill seems to agree and has extended its strategic partnership with InnovaFeed to expand the use of insects in fish and animal feed, particularly for pigs. Insect fatty acids provide an 80 per cent reduction in carbon footprint compared to vegetable oils.

Talking of insects, the EU Court of Justice last week dismissed an appeal by Bayer against the European Union’s ban on three neonicotinoid insecticides. Despite the ruling, some EU nations have already partially lifted the ban, allowing sugar beet farmers to use neonicotinoids on seeds coatings through 2023.

In little-reported but good environmental news, the US Department of Energy’s Argonne National Laboratory found that, due to better corn and ethanol yields, the carbon intensity of ethanol fell by 23 per cent between 2005 and 2019. Ethanol can now reduce carbon emissions by 44-52 per cent compared to gasoline.

Finally, if you are looking to learn more about regenerative agriculture – what it is and what it isn’t – I recommend this well researched and well written long read from the Counter.

May 4, 2021

Weekly Press Summary

In what may become big news, the EU is reconsidering whether to allow genetically modified organisms (GMOs). A study – requested by the European Council – argued that GMOs could play a role in the EU’s goal to be carbon neutral by 2050. They could also help the bloc’s Farm to Fork Strategy to make food systems ‘fair, healthy and environmentally friendly.

Rising soybean prices are resulting in a wave of farmer defaults in Brazil, where trade houses are finding it difficult to enforce contracts made when prices were lower. Farmers complain that trade houses are demanding delivery even when they struck a verbal agreement on Whatsapp, over the phone or by email.

High grain prices are impacting global trade flows. US chicken producers are buying Brazilian soybeans, and Brazilian chicken producers are buying corn from Argentina. Meanwhile, animal feed producers worldwide are increasing their wheat purchases.

Rising prices and disrupted trade flows may be bad news for the world’s consumers, but they boost revenues for the world’s trade houses. ADM’s quarterly profit to end March jumped 76 per cent on last year; their oilseed crushing unit saw a record quarter. As ethanol prices have risen, ADM has restarted two dry corn ethanol mills. However, the company has said that it still wants to sell them.

Bunge Ltd reported a 91 per cent rise in its third-quarter profit on strong soy processing margins and robust demand. Bunge agribusiness quarterly earnings more than doubled to $467 million and the company has raised its 2020 earnings outlook from $6.25 to $6.75 per share.

Cargill’s Brazilian unit has posted a record net profit of more than 2.1 billion reais ($385 million) and revenue of 68.6 billion reais for last year.

The French cooperative InVivo has agreed to acquire family-owned Soufflet in a deal that will create one of Europe’s biggest agricultural businesses. The takeover could be completed by the end of 2021, subject to regulatory clearance. InVivo’s CEO said he wants the combined company to be able to compete with global crop merchants.

State-owned Saudi Grains Organization (SAGO) – one of the world’s biggest buyers of wheat and barley – is preparing to sell some of its grain silos as part of the country’s privatization programme. The company has 3.3 million tonnes of grain storage. SAGO sold its flour mills last year for about $1.5 billion.

Still on company news, Olam International has acquired California based spices and seasoning business Olde Thompson for $950 million.

Although container rates peaked in late 2020 – and have been relatively stable in 2021 – they are now heading higher again. Analysts warn that they could rise further as the world’s economic recovery gathers steam.

Meanwhile, Cargill has cut nearly 1.5 million tonnes of gross carbon emissions from its shipping fleet since 2017. Cargill’s gross CO2 emissions fell to 7.102 million tonnes in 2020 from 7.732 million tonnes in 2017. The company charters between 600 to 700 vessels each year.

Low water levels in the Parana and Paraguay rivers are leaving barges grounded and disrupting shipments. Water levels in the port of Rosario are forecast to drop to about 1.17 metres this week versus an average for this time of the year of 3.58 metres.

Drought is also affecting river levels in the north of the continent. More than 15 million salmon raised at hatcheries in California’s Central Valley will hitch a ride to the Pacific Ocean in about 146 trucks. Following two years of drought, water levels in the state’s rivers are too low for the salmon to make the journey alone.

There was further bad news for fish lovers this week when we learned that wild salmon are getting smaller, apparently because they’re returning from the ocean at a younger age, with climate change and overfishing possibly to blame. As a result, Whole Foods has reduced its salmon buying size guidelines.

But, to curb overfishing, the World Trade Organization has said that it is accelerating an effort to end the $22 billion in government subsidies that support fishing industries worldwide. The new WTO Director-General has made the issue her top priority and has called a conference for July to discuss the issue.

But it is not just fish that are in difficulty; America’s bees are also under pressure. American beekeepers have filed a suit against the country’s honey importers, claiming that fake honey from Asia is pushing American beekeepers out of business. Honey is the most adulterated food after milk and olive oil.

Tyson Foods has launched a range of vegan meat products, joining other meat companies in the rapidly growing market for alternative proteins. Consulting firm Kearney has forecast that meat demand will peak in 2025 and that the alternative protein market will grow to $450 billion by 2040, a quarter of the $1.8 trillion meat market.

However, a survey of 1,000 adults found that 73 per cent of Australian men would prefer to reduce their life expectancy by ten years rather than stop eating meat. The survey also found that 79 per cent of Australian men say they would not eliminate meat from their diets to help reduce their carbon footprint.

Meat is fast becoming a politically partisan issue in the US. Contrary to some media reports, President Biden will not limit meat consumption – or force you to drink ‘plant-based beer’. However, it appears the meat wars are only just beginning.

Finally, there was an excellent article in the FT this week about corruption in the commodity sector. It focuses on the energy and metals sectors, but it is still worth a read.

April 27, 2021April 28, 2021

Weekly Press Summary

With wheat prices soaring, Bioceres, an Argentinian company, hopes that the world will change its mind about genetically modified wheat. Consumers have accepted genetically modified soybeans and corn, mainly because they are fed first to animals. Still, they have pushed back on genetically modified wheat, possibly because we consume it directly. Brazil’s government is due to vote next month whether to allow GM wheat; if it does, Bioceres will have its first market.

Rising vegoil prices, along with the US’s planned expansion in renewable diesel, are encouraging traders to expand their processing capacity. Cargill has announced that it will build an additional canola-crushing plant in Canada, adding one million tonnes to its Canadian capacity. Viterra has also announced that it will have a new canola plant up and running by 2024. Cargill is also investing directly in the production of renewable diesel with a new plant in Hastings, Nebraska, a joint venture with the Love group of companies.

We reported last week that skyrocketing corn prices have led to (perhaps overly optimistic) suggestions that China’s livestock farmers could replace imported corn and soy with domestically produced grains and oilseeds. This week, the Chinese government, concerned about a recent uptick in African Swine Fever, has announced new rules that control the movement of live hogs within the country. They could completely reshape the domestic pig-rearing industry.

But it is not just the domestic hog market that China is reshaping; COFCO’s growing importance in China’s imports is reshaping the competitive landscape for global grain traders.

Closer to home, Nestlé published its strongest quarterly results in a decade, primarily driven by solid demand in coffee. While presenting the results, the company’s CEO put a strong emphasis on sustainability, arguing that consumers now insist on it. Putting words into action, Nestlé confirmed that it is joining LEAF – the Lowering Emissions by Accelerating Forest finance Coalition – a public-private project that aims to raise at least $1 billion in initial financing to reduce or reverse deforestation.

Meanwhile, Nestlé has confirmed that it is in discussions to buy US-based nutritional supplement maker The Bountiful Company.

Not everyone is as bullish on coffee demand as Nestlé. Neumann, the world’s biggest coffee trader, expects demand to remain under pressure as Covid lockdowns come and go. There is, however, hope for coffee-lovers. A new wild coffee variety has been discovered that grows in warmer climates and is less vulnerable to climate change. It also, apparently, tastes delicious.

Still looking to the future, New Food Magazine has made some predictions about agricultural supply chains. They will increasingly be driven by data and technology, with a strong dose of transparency thrown in. Neither snack foods nor pet foods will be excluded from these trends.

Trade houses continue to adapt accordingly. This week, ADM opened a new plant-based food innovation laboratory in Singapore while Cargill announced an investment in Bflike, a Dutch start-up in plant-based meat and fish alternatives. Even Epicurious, the online food magazine, made headlines (and undoubtedly some enemies) when they announced that they would no longer publish beef-based recipes.

April 18, 2021

Wheat is not wheat – Fausto Filice

Fausto Filice was head of wheat trading for Cargill before moving to Bunge in 2013. He retired from the corporate world in 2019 and now lives in Verbier, Switzerland. I asked him how the wheat market has changed over the years.

Wheat was the main focus of the trading floor when, in 1987, I joined Cargill Geneva after two years in their Milan office. The top managers in Geneva were all former wheat traders, and wheat was the commodity with the most opportunities. It generated the bulk of the profits.

At that time, trading meant making deals; wheat was the commodity with the most opportunities to make deals. The Soviets and Chinese were the big players. Striking supply deals with them gave you a significant advantage in market knowledge. Other governments were also willing to make deals secretly. Some of the more notable deals were even kept secret from young traders on the trading floor for several days!

There were also government entities on the supply side: the Australian Wheat Board and the Canadian Wheat Board made secret deals with big buying entities; monopoly players dealing with other monopoly players.

Wheat feeds people directly and is the commodity that is most susceptible to government involvement.

It was also the period of big export subsidy wars; the US and EU were trying to gain market share and reduce their costly intervention stocks. The business was about having large trades in the books and then ‘bidding’ Washington and Brussels for the highest subsidies. It was when prominent global players like Cargill, Continental, and LDC had a significant competitive advantage.

All of this has changed over time as the wheat market has progressively liberalised and privatised.

How would you describe the wheat market today?

The wheat market evolved in the 2000s as the Black Sea became an increasingly prominent player. At the same time, we had the liberalisation of Canada and Australia, so those markets also opened to traders.

There are no dominant players in today’s global wheat market – and no more large secret deals. Instead, many small companies are originating, marketing and shipping wheat from one or two origins, often serving specific customers with specific quality requirements. Large multinationals like Cargill, Bunge and LDC try to compete with these smaller companies in the various wheat export geographies, but they are often the 4^th, 5^th or 6^th player in these areas.

The large trading companies retain a competitive advantage: although they may not be the biggest in any of the significant exporting corridors, they participate in all of them. Cargill is a big player in soft red winter wheat in the US, but they are not the largest. Likewise, they are big players in spring wheat from the PNW (Pacific North West), but they are not the biggest. The same reasoning is valid for Bunge, LDC, ADM or Viterra. The result is that even though these companies don’t dominate trade flows, they have the best global overview of flows and, consequently, the global supply and demand.

Today the global wheat market is highly fragmented, with dozens of smaller niche players, strong in their origins but without a global overview. Only a percentage of what goes on in the wheat market is visible; many private deals are going on in the background. It makes things interesting.

Over your career, you have traded corn, wheat and soy. Which do you prefer?

I prefer wheat. It is more complicated than the other grains. Yes, there’s a global wheat market, but, as I said, it’s a compilation of smaller niche markets that intersect within themselves, but only partially.

What advice would you give to a young trader in the wheat market today?

If you’re a young wheat trader, you’re most likely working for a company that is a niche player. It could be a Russian, Ukrainian or Romanian company working exclusively out of the Black Sea area. Or it could be a French or German cooperative. You will be a specialist in your region but ignorant of other parts of the globe. I would encourage you to learn as much as possible about the different areas and how they work.

For various reasons, different countries – and the buyers in those countries – buy specific qualities. The spreads between these qualities can be technical.

Wheat is not wheat. There are perhaps as many as 20-25 different types of wheat traded, and I would advise you to learn as much as you can about the relationships between them.

You can trade these differentials while learning to understand the nuances between the different origins and qualities and how and when they intersect. This knowledge will allow you to have an opinion on the overall direction of the market.

Agricultural commodities are weather-based, but you have to consider all the political drivers, whether a change in Chinese policy, Russian or Argentinian export taxes or Brazilian strikes. These factors are constantly changing. You have to be able to weigh those variables the right way. It’s like a never-ending game of chess.

Would you recommend a young person to join the sector?

Absolutely! I find commodity trading more interesting than, say, looking at corporate balance sheets or bond yields. Commodities are much broader; they encompass more facets of the global economy.

Commodity trading is the pulse of the world economy.

Thank you, Fausto, for your time and input!

This is an extract from my upcoming book, Commodity Crops – And The Merchants Who Trade Them.

March 21, 2021June 22, 2022

Women in Coffee

In 2020, I interviewed Shirin Moayyad of Sweet Bean Coffee for my book Crop to Cup and my blog. I now invite her back to take part in our ‘Women in Commodities’ series.

Good morning, Shirin. You have recently started selling a range of coffees produced by women. Could you tell me a little about your motivation for that?

There is a belief in my parents’ faith that if you have two children, one boy and one girl, you should educate the girl first as she is likely to have fewer opportunities in life than the boy. My parents raised me with this early belief in affirmative action.

When I talked with David Griswold, the founder of Sustainable Harvest, he told me that women-produced coffee is often better than men-produced coffee. Is that your experience?

Dave introduced me to Fatima Ismael, a lady cooperative coffee producer and agronomist in Nicaragua. In her case, and in the case of the women with whom she works, it is true that women-produced coffee is better than men-produced coffee.

Fatima compares woman farmers to women as mothers. We care for the earth as we care for our children. Of course, that isn’t the case everywhere, but it seems to be in the case for Fatima and Nicaragua.

David also mentioned that paying women for coffee means that more money stays with the family than when you pay men. Is that a factor in your decision to sell women-produced coffee?

The Partnership for Gender Equity – a spin-off from the Coffee Quality Institute – is one of the more prominent and more renowned initiatives around women in coffee. It estimates that for every dollar that a woman coffee grower earns, she will spend 90 cents on the household; a man would pay 40 cents. Even if those figures are not entirely accurate, they do give an idea of the situation.

Nicaragua is well-known for women coffee growers. Is it a cultural thing?

You are right; there are a lot of women coffee growers in Nicaragua. During the civil war, the men were away, and the women had to run the farms and work the land. It helped the development of women in farming in the country.

Women supply 70 per cent of the labour force on coffee farms in Ethiopia, but few are educated, and many are illiterate. In Brazil, by comparison, I met women coffee growers who tended to be from the higher echelons of society, well-educated and well-off. It doesn’t mean all women farmers in Brazil fall into this category, but that was my experience there.

But it can also vary within countries. If you take the island of Sumatra, there are two distinct regions from which we source speciality coffee: North Sumatra and Ace. Women dominate the supply chain in North Sumatra, but in Ace, men dominate the supply chain.

In Costa Rica, I came across two radically different lady coffee farmers. One was from an enlightened family background where, at the age of 14, her father taught her how to drive the family truck, prune trees, apply fertilizer and manage the entire farm. The second lady grower had been physically abused and nearly beaten to death by her parents and then her husband. They both told her that she was too stupid to drive a car or manage a coffee farm. The police eventually put the husband in prison, and the woman now successfully runs the farm with her daughter.

Abuse tends to stop when a woman starts bringing money home. In their book Half the Sky, the authors write about a woman in Burundi whose husband had abused her until she got micro-financing for a business. Once she did, her husband realized her economic value – her potential to bring money into the family – he stopped his abuse.

What is holding women back in the coffee world?

Women may grow the coffee, but they rarely own the land. Land ownership is a critical requirement for belonging to a cooperative. Everyone likes to think that cooperatives work to benefit everyone in the community, but they often exclude women growers because they can’t prove they own the land.

Not being a cooperative member means that women have less access to credit, agricultural inputs, training, and market information. They are denied leadership and are cut off from decision making. Also, not being a cooperative member often excludes women farmers from the training that many well-intentioned foreign NGOs might offer.

In many countries, women grow the coffee but men transport and sell it. Women not only have to grow coffee, but they also have to participate in the supply chain. When women are doing 70 per cent of the labour, you have to include then in the sale of their produce. They can, and must, contribute to making the coffee sector more viable, healthy, quality-orientated and profitable.

What more could we do to promote women in coffee producing countries?

As a coffee roaster and buyer, my personal choice is that quality comes first. If I am faced with two coffees of equal quality and one is produced by a woman and one by a man, I will choose the former. For example, I have recently started a line of Sumatran coffee made by a women’s cooperative. I had a choice of various equally good coffees from the region, and I chose the women-grown one. I will not discriminate against quality for gender equality.

If you are a coffee buyer and you have a choice between equally outstanding coffees produced by both men and women, I urge you to choose the one made by the latter. Encouraging more women growers will improve coffee quality and be beneficial for the families that produce it. Doing so will strengthen the integrity of the value chain and make it more economically, environmentally and socially sustainable.

I understand that you have recently been crowdfunding for your start-up and to promote women in coffee. Could you tell me a little more about that?

I am crowdfunding to finance a new roasting machine. I started with a small roaster, but my business is growing fast, and I need more capacity. Having a larger roaster will give me leverage to buy more women-produced coffee. I have three different women-produced coffees, but as I grow, I will source more.

Thank you, Shirin, for your time and input.

March 14, 2021March 14, 2021

Your Career in Commodities

In their excellent and must-read book, The World for Sale, Javier Blas and Jack Farchy have pulled together what the FT calls ‘rollicking yarns’ from the last fifty years of commodity trading. The authors have written the book like a spy thriller. James Bond (in the form of Vitol’s Ian Taylor) braves missile attacks to provide oil to fuel the Arab Spring. The evil genius Blofeld (in the form of Marc Rich) manipulates markets, breaks sanctions and trades with the enemy.

Ian Taylor and Marc Rich have sadly passed away, which makes me wonder to what extent the book reflects the current reality of commodity trading. When the world of trading is trying to increase diversity, what impact will the book have on a young person, particularly a young woman, thinking of a career in the business? Would it be like a young person joining the CIA or MI6 searching for heroic derring-do, only to discover that modern-day spying is more about computer-based data management?

The question, therefore, is: ‘If you read The World for Sale, would you be disappointed if you joined the world of commodities?’ My answer is: ‘It won’t be what you expect, but you won’t be disappointed.’

Commodity trading has always been about data – what we used to call ‘statistics’ or ‘supply and demand analysis’ – which commodity professionals use to predict future price behaviour. The weather is probably the most critical variable in agricultural commodities, but there are many others, politics and government intervention being high on the list.

Making sense of all this data – bringing all the various elements together to form a compelling picture – is like doing a jigsaw puzzle on the deck of a yacht in a Force 8 gale. There will always be missing pieces, and you will have to make difficult decisions without full information.

You will spend a lot of time on that yacht if you join a financial institution as a ‘paper’ trader. Your work will be almost 100 per cent analysis, but you will quickly get used to being buffeted around by the gales that regularly sweep through the markets. Although I prefer physical commodity trading, you will have a challenging and rewarding career as a paper trader. You will also be adding value in terms of market liquidity and price discovery.

Physical commodity merchandising is about sustainable and efficient supply chain management. You can define it as ‘transforming commodities in space (geography), time (storage) and form (processing)’.

As you move your particular commodity along the supply chain, you will discover market inefficiencies and mispricing. These could, for example, make your corn worth more as ethanol than animal feed. You could find that it is cheaper to supply your Chinese wheat buyers from the US than Australia.

Most market inefficiencies occur when poor crops or government interference disrupt supply chains. The Trump trade wars with China meant that Brazilian soy suddenly increased in value compared to US soy. Russian export taxes on grain suddenly made other origins more competitive.

You may do all your analysis and discover that the market is not mispricing the various differentials but is mispricing the entire supply and demand for a commodity. When that happens, the flat (outright) price will move. This occurred during the super cycle of the 2000s when the world underestimated Chinese demand (for everything) while overestimating the world’s ability to supply it.

As you merchandise your physical commodity, you might, if you are lucky, earn a tiny margin at each stage of the supply chain. However, you will be more likely to make your living as a commodity trader by taking advantage of small market inefficiencies – mispricing – all along the supply chain. By doing so, you will not only make a profit; you will also make the market more efficient, ensuring that it sends the correct price signals to market participants. This is especially true for the flat price. Futures markets reflect the future: prices move in advance of a shortage or surplus, solving the problem before it happens.

As well as making your supply chain efficient, you will also have to make it economically, environmentally and socially sustainable. Your customers will demand nothing less, even if, unfortunately, they won’t pay you extra for it. Sustainability is now a ‘given’. In achieving this, you will find yourself working alongside – rather than in conflict with – NGOs, certification agencies and other not-for-profit foundations.

As I discovered when I wrote my book about coffee, you may also find that you are using your supply chain in reverse, helping NGOs to implement and effect change at the origin.

As well as managing the traceability of your supply chain, you will also have to manage the risks in it. You can hedge some of your price risks on the derivative markets, but most differentials are impossible to hedge. The skills you learn will enable you to trade those differentials successfully.

You will also have to manage counterparty risk – a client defaulting on you – and country risk – a government changing the rules on you. You may also have to deal with fraud, drug traffickers and other possible criminal activity.

A senior official from Olam recently told me that the health and safety of employees is the number one risk that his company faces – and that cybersecurity is number two. You will have to deal with both.

You won’t be able to merchandise commodities if you don’t have suppliers and customers. The people you will deal with will probably be from different countries; you will have to become accustomed to dealing with people from other races, cultures and creeds. Many of these people will become your friends.

Meeting and interacting with clients was always the most enriching part of my life as a commodity trader. One week I could be wandering in the cane fields in Brazil, Thailand or India. The next, I could be walking the streets of Manhattan visiting hedge fund managers.

You will also have to work in a team. The movies depict James Bond as a lone wolf who saves the world single-handedly, but he would not work alone in real life. The best teams are diversified, with people of different skillsets, of different genders, and from other races and backgrounds. Commodity trading is a global business, and you will soon lose any prejudices that you may still be carrying around with you.

Finally, if you want an idea of what to expect from a career in commodity trading, you couldn’t do better than to watch this video interview of Dave Berhends, one of the world’s top coffee traders.

In their review of the World for Sale, The Times writes that commodity traders are the true Masters of the Universe. Fortunately, that is not true, but our business is still a great one to be involved in – especially if you are a woman.

Image by Peggy und Marco Lachmann-Anke from Pixabay

March 7, 2021June 22, 2022

A woman in coffee

To celebrate International Women’s Day, we post a blog that Shirin Moayyad, the founder of Sweet Bean Coffee, wrote in 2019 when she was first setting up her business. Next week, I will talk more with her about women in coffee. The following week, I will look at what we can all do to encourage more women into the world of commodity trading. Here is Shirin’s story:

I have now worked for nearly 30 years in coffee. I am at long last the founder and owner of my own coffee business. I have been in charge of a coffee farm in the remote Highlands of Papua New Guinea, where I also managed a roasting and exporting company. I travelled the world buying coffees for Peet’s. I guided National Geographic’s film crew through the coffee fields of Ethiopia and Colombia. I’ve had a long and varied coffee career, taking advantage of every opportunity to expand my knowledge, further my skills and experience as much as possible. And yet, it still comes as a surprise when I face gender discrimination.

Last week my partner and I dismantled a 33-year-old kitchen we’d purchased online to refurbish for my new roastery’s cupping lab. Armed with crowbars, hatchet, saws and a mountain of tools, we set to. Mid-morning, the homeowner invited us in for a coffee break and began asking about our plans: why we needed this kitchen, what we planned to do with it etc. Eyes widening with interest, he asked a whole series of questions. Where they concerned construction and refurbishment, my partner answered. Where it had to do with coffee, Didier directed the gentleman to me, saying, “Shirin is the coffee in this equation; she’s the one to answer that.” Kindly though he was, the gentleman only looked at me briefly, then immediately turned back to Didier, as if in subconscious denial that I, a woman, could be the business owner, the authority, or the one who knew the answers on coffee.

Don’t get me wrong. I am in awe of my partner’s abilities. I think it’s nothing short of miraculous, all the things he is capable of doing. I don’t know how to sand and spackle a wall. I don’t know how to wield a crowbar or saw through a granite counter. My mother did. But I don’t. She grew up in privation in WWII, Germany. Where you had to know how to do everything. My dad was the poet, the dreamer, the aesthetic; my mum was the doer, the powerhouse who made it all happen. She got shit done. She is, I realise, the person who most influenced who I am today.

Still, coming back to kitchen dismantling day. I found myself astounded by the gentleman’s assumption that it had to be Didier who knew coffee; he was the authority simply because he is a man. Maybe once upon a time in my career, this wouldn’t have struck me so much. But now, some 30 years on, it comes down as being just ludicrous.

It was 20 years ago in Singapore when I first found myself frustrated by the blatant discrimination of these assumptions. I was head of coffee, roaster and buyer for a 28-shop chain when I hired a mate of mine from Australia to come roast. He was a lovely bloke; a tall, amiable guy, very competent and a big help to me. But he was my employee, my hire, my direct report. And I lived the same frustration there, of facing implicit assumptions that he was boss, and I was just some little sidekick, an assistant perhaps. Inevitably, his authority was sought, his opinions solicited, the assumption made that he was The Man. It wasn’t his fault, mind, it just was that way. And I was young enough not to be too irritated. But now, some 30 years on….

There was that origin trip once when we were a group of coffee professionals on a bus, headed out to a farm visit. A chap sat next to me and proceeded to soliloquise on his extensive coffee experience, all the marvellous things he’d achieved at origin. I wasn’t sure when he found time to breathe, he was so enthralled with recounting his own achievements. I forgot what topic it was that prompted me to interject mildly how yes, I had also found XYZ issue on the 98-acre coffee farm that I managed in the remote mountains of Papua New Guinea. There was a moment of silence when my words broke through the waterfall of his monologue, and his face went blank. Dumbstruck. Silent. I watched the virtual cogwheels turning as he struggled to compute the information he had just heard. In the event, it was clearly too much for him to compute since, after that brief respite, he went right back to blathering on about his record of achievements. Sigh. It wasn’t yet 30 years then, but it was starting to irritate me.

My mum isn’t the only one to have inspired me over the years. There are others: women in coffee the world over who have been there in one form or another as I learned this path.

Erna Knutsen was one such wonder. I was travelling to California on a trade mission to represent Papua New Guinea – because, by then, I was managing a coffee roasting company there that had achieved considerable export success. My colleagues at home told me to contact Erna as she was the US importer of our finest estate coffee and would look after me. And indeed, she did. Erna invited me to her cupping table whilst evaluating a quality claim on a pricey auction lot Kenyan. Erna was the woman who coined the phrase speciality coffee, the grande dame of our industry who broke the glass ceiling and brazened her way to a place at the cupping table. She was awesome. And here, without knowing anything about me, she allowed me to cup alongside her. I trembled at the honour.

Later that afternoon, I experienced the true flamboyance of this trailblazing woman. She’d booked us a table at San Francisco’s Boulevard Restaurant…a place so fancy to my Papua New Guinean bush eyes, I couldn’t help but be impressed. And there she was, sporting a leopard skin pantsuit, through her cat-eye spectacles calling the handsome young server “darling” and drinking some mighty strong cocktails over lunch. Her self-confidence allowed her a flamboyance I could only dream of.

Today’s earthly embodiment of the virtue of grace though would have to be the inimitable Sunalini Menon, an extraordinary woman I consider to be both a mentor and one of the world’s greatest coffee cuppers. I first witnessed her quiet self-assurance and profound knowledge of coffee at work in Singapore when I moved there from Papua New Guinea. Two gentlemen were trying to sell me coffee from Yunnan, China, which was coming on as an origin. “As good as a Costa Rican hard bean,” they blustered loudly. Sunalini happened to be cupping with and coaching me that afternoon, but they clearly didn’t know her and assumed she was just another woman who could be hoodwinked and bullied.

As we started to cup their samples, Sunalini gently probed them with questions on the varieties they had planted. Was it a first or second-generation cross as the Catimor cup was clearly coming through? Perhaps the parenting might have been from XYZ stock as that taste was in the finish, didn’t they think? And where had the progenitor plant material come from as it tasted rather more along the lines of IMN than XYZ, didn’t they think?

With every softly spoken question, her deference combined with her indisputable empirical knowledge of what she was cupping put the gentlemen further on the back foot. I watched their posture literally move from forward-leaning, imposing, nearly bullying to quiet, defensive, and ultimately defeated. The lids came down over their eyes, their body language shut down, they were silenced. It was a prize-winning performance, the likes of which I have not since seen. Never once did Sunalini raise her voice or humiliate. Instead, with soft-spoken words underpinned by the undisputed certainty of her palate and her knowledge, she whipped them. Always immaculately clad in the bright and decorative costumes of her native India, Sunalini’s personal and professional elegance is an inspiring beacon to other women in coffee.

Let me end by drawing a parallel that might help the reader hear my point of view. I have a dear friend, Phyllis, an African American coffee professional. Some years ago, I reflected on the fact that while I could sympathise with her fight and certainly try to empathise with the discrimination an African American experiences, still I could never fully feel it. Why? Quite simply, because I’ve never lived it myself, I haven’t walked in those shoes. It hasn’t been my experience in life, and as much as I sympathise, I cannot live that experience the way Phyllis has.

By the same token, although I’m certain that while my many male colleagues and friends in coffee all sympathise, they cannot know in full what I feel because they’ve never lived it. They’ve never experienced this through this lens. Through the lens whereby, after some 30 years in the industry, a man would still turn his back on a woman and direct his questions at a fellow man with arguably nil experience in coffee.

If I look at the cumulative lessons I’ve learned from the women I admire, what it boils down to is this:

Know and love your subject matter because nobody can question that kind of integrity, and you will live with its certitude.
Believe in yourself and don’t listen to the noise of others. You know your worth; the monkey chatter of others should wash over you and not stick.
Don’t be afraid to have your style. From Erna to Sunalini and every other icon in the world of women in coffee, with the knowledge they have, style is an adornment, a cloak that embellishes their individuality and worth.

Note: these reflections are simply that and no more. And I dedicate them equally to the man I love, as to all my many coffee sisters. And most particularly to my mum, the woman who could do everything.

I also want to thank all my male colleagues for the huge support they give to women in coffee. The world is indeed changing, and there are several men out there – you know who you are – who I look up to every bit as much as I do to the likes of Erna or Sunalini.