COFCO is planning to move ahead to gain market share from rival trading firms, a source close to the company confirmed. This echoes an earlier statement saying the company was looking to partner with overseas players, and not limit itself to being a procurement platform for China. As part of the recent team changes, COFCO hired ADM’s ex-manager to head its APAC division. In Brazil, it is reportedly looking at taking Cargill’s shares in the Sao Paulo Cevasa sugar mill.
However, an American agricultural economist argued that COFCO would not manage to win much more market share unless it bought into one of the main agricultural trading houses. An ex-employee added that its government mindset would be a challenge, as well as the wide cultural differences within the group as a result of past acquisitions.
Regardless, China’s appetite for commodities is only expected to grow. In 2017 it became the world’s first oil importer, overtaking the US. Soybean imports, meanwhile, increased 14% on year to reach a new record, and should continue to grow in 2018.
The USDA has ask Congress to accelerate efforts to correct a provision in the Tax Cuts and Jobs Act which gives tax benefits to farmers selling crops to cooperatives instead of private traders. A USDA statement on January 12 stressed the tax benefits for farmers needs to be retained, but other industry participants must not be disadvantaged.
The US is increasingly seen as about to withdraw from NAFTA, according to two Canadian government sources. Similarly, BMI’s Fitch Group pegged the probability of a US withdrawal at 30%, mainly because the US president can take this decision unilaterally. However, the President recently said he might consider extending the deadline for negotiations.
The UN’s FAO index showed that food prices fell in December, thanks to high supplies of sugar, wheat and dairy products among others. Similarly, the Bloomberg agriculture sub-index of futures contracts hit its lowest ever level in December. Even so, the FAO index showed that food prices in 2017 were the highest since 2014, but still 24% cheaper than 2011.
In the US, corn growers who had hoped to increase their revenues by cultivating white corn, usually used for food products, are being forced to sell it at a loss to ethanol and animal feed producers because of a surplus and an eroding physical premium. The premium is expected to remain low in 2018, as South Africa recovers from drought and starts exporting white corn again.
Despite the country’s grain glut, Russia’s agriculture minister said this week the government will only buy grains through its State Intervention Fund as a last resort. He argued that state intervention at the moment would be ‘harmful.’ Last month, the government decided to give USD 34 million in cash subsidies to the railway network to move grains from isolated areas to ports in a bid to boost exports. However, a shortage of wagons is still a problem.
Hedge funds saw on average a return of 8.5% return in 2017, the highest since 2013. FIR figures show this was mainly thanks to good performance of investments in equities. Confidence in hedge funds seems to be returning slowly, with an estimated USD 2.9 billion fresh capital injected in Jan-Oct 2017, compared to an exodus of USD 70 billion the previous year. The other good news is that HSBC revealed three out of the five best performing hedge funds in 2017 were human – as opposed to computer – driven.
In a bid to reduce exposure to macro risks, more hedge funds are looking into investing in so-called ‘exotic’ segments such as ethanol, rough rice or even cheese. These assets are viewed as giving higher yields. For instance, the Florin Court Capital fund said it logged a 7.6% profit after deciding to switch its focus completely to such non-traditional assets.
In the UK, Britvic will be shedding 20 billion calories from its drinks after reducing added sugar significantly ahead of a sugar tax debut in April. The move comes under the group’s new health and sustainability programme which also includes reducing plastic waste in a bid to become waste-free by 2020. It is trying to make bottles from sustainable wood fibres, among other things.
In a similar vein, Cargill has started producing and selling food-grade potassium chloride, a salt-alternative, at a new production facility which is part of its existing New York salt plant. The move responds to the growing consumer concern about eating more healthily, and aims to strengthen the group’s higher margin ingredients portfolio.
After much speculation, Nestle is officially selling its US confectionary arm to Ferrero for USD 2.8 billion. Nestle also sold its Australian chocolate brand Violet Crumble last week to a local confectioner. While the company intends to keep its non-US confectionery business such as KitKat, the sale will allow investing in healthier segments. The CEO said they are looking at pet care, water and vitamins. It is hoping to buy German drugmaker Merck, having bought vitamin maker Atrium Innovations last month for USD 2.3 billion. However, analysts at Reuters pointed out that, at an estimated USD 5 billion, Merck would only give a 4% return on investment.
More companies dealing and promoting urban farming are popping up, at a time when an increasing number of people are living in so-called food deserts. Futurism reports that thanks to the high level of technology required, vertical farming and urban agriculture tend to waste much less than traditional farming. While this could be a solution to help feed the growing global population, experts argue that crops such as grains are unlikely to ever be grown indoors.
Maersk has partnered with IBM to manage its large shipping network using blockchain. They are building a platform that can be used by all those involved in shipping. The technology – known to be well adapted to wide networks with multiple participants – will improve transparency by creating records that can’t be altered.
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