Good morning J-F. Could you briefly describe who you are and what you do?

I am a former banker with a banker’s DNA. I spent most of my career in international banking and trade finance, with stints in Greece and Asia. I was originally with Crédit Commercial de France -CCF, and then with HSBC, when they took over CCF. I moved to London where I built the structured trade finance activities, and then the global commodity finance activities for the group.

I’m now a consultant on trade and commodity finance and strategy for banks, companies and funds. I also teach commodity market dynamics at Sciences Po in Paris, and regularly lecture at the London Business School.

How are the different trade houses adapting to the changes in their business environment?

Although everybody is investing in logistics, Glencore is differentiating itself through a strategy of size. They believe that through size they can reduce costs, and perhaps even become a price-setter rather than a price-taker.

When you talk to ADM or Cargill, they tell you that they don’t trade commodities, but that they are an integrated supply chain from farm to fork. Their profits are not coming from trading; their profits are coming from sophisticated supply chain management. They also endeavor to generate commercial margins by producing and selling adding-value products downstream.

Cargill has been doing this for many years now, shifting focus to animal and fish proteins. This certainly makes sense when population is increasing and the middle-class is growing. The world needs more protein, and Cargill’s investment into the verticality of the protein supply chain is paying off handsomely.

ADM is a different animal. Let’s not forget that the original “A” amongst the ABCDs was André, not Archer Daniels Midland. ADM is by and large an agri-industrial company, not a trading house. It has developed into trading, but the bulk of their money is spent and earned on the industrial part of the business.

Dreyfus will also tell you that they are no longer a trading house, and that they are now supply chain managers. However, Dreyfus is probably one of the last true large trading houses left in the market. That is quite a challenge in a market where the odds of making money through trading get slimmer.

Bunge is somewhere in between Cargill and Dreyfus. There is more trading at Bunge than there is at Cargill, but Bunge is keen to complement their upstream capabilities with downstream access, in search for commercial margins. Their aim is to lower their reliance on trading and become more of an agri-industrial company.

What about COFCO, or rather their trading company COFCO International Ltd? You once said that their role was to feed the dragon.

COFCO International is a game changer in the world of agricultural commodity trading.

I believe their true mission is to optimize sourcing at origin and ensure a smooth and efficient supply for the Chinese market. Their grip on China as a destination is already strong and will only get stronger. This is a major issue for the ABCDs, as price discovery in China will get more difficult to read.

I believe the rivalry between the U.S and China is a new normal. If that view is correct, COFCO International’s role becomes even more important. It has to restructure the sourcing and origination of China’s food imports in order to lower the country’s dependency on the U.S. To fulfill it efficiently, I would expect further acquisitions/alliances down the road.

Do you believe that traceability is an integral part of a trade house model?

Traceability is not a luxury, it is “a must have.” Part of the process of industrialization is to efficiently support that traceability requirement. For now, consumers in developed countries are the most demanding, but with emerging urban middle classes around the world, requirements for traceability will only rise and spread.

There seems to be a growing trend for banks to link finance to sustainability and human rights objectives.

I see a future—not too far away—where at least the large banks will eventually only finance sustainable production. This is the trend. If you look at the coal business, not a single international bank will finance a new project in coal fired power generation. I think that banks will have to exit non-sustainable agribusinesses. Not doing it would merely be unacceptable to the society at large, and the reputational risk incurred would be too high.

 Will any of the big trading companies exit their bulk commodity trading operations to concentrate on higher value parts of the supply chain?

Trading companies will not “quit” trading. It is their core expertise and their culture. However, trading as a stand-alone is no longer generating profits in line with the risks undertaken. All large trading companies therefore are endeavoring to complement – or rather, enhance – their trading capabilities by capturing what they have identified as the higher value parts of the supply chains. This is easier said than done.

First, you need to identify the right supply chain and the right portion of it: upstream or downstream. Second, investing in supply chains is costly and companies need the financial strength to do so.

Not every player can afford the risks and costs involved. This leaves them with two alleys: partnerships and mergers amongst equals.

Do you think that trade houses should be publicly quoted?

A listed company has to have a growth story to tell, year after year to investors. This does not fit well with the cyclical nature of the commodity business. But I will go one step further. As I already said, commodity traders are currently struggling to make money, and I think that they will continue to struggle in the years to come. So I doubt we will see any commodity traders listing in the next 10 or 15 years.

Would you recommend a young person now to join one of the big grain trading companies?

There is no better school for someone to learn about markets and discover how the world works. Commodities are about history, demography, geography, economy, finance and geopolitics! It is a fantastic training for young people, even if they intend to move on to other activities.

Thank you J-F for your time.

© Commodity Conversations ®

This is a brief extract of a conversation that will be included in my upcoming book on the grain trade, to be published before the end of 2019.

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.”

 © Commodity Conversations ®

Gert-Jan (“GJ”) van den Akker is responsible for strategy and execution for Cargill’s agricultural supply chain businesses. He joined Cargill in 1987 in Amsterdam and held a number of positions across Cargill’s agricultural supply chain businesses, including roles with palm oil by-products in Kuala Lumpur, domestic grain markets in Tokyo, and corn and soybeans in Geneva.

GJ has also held leadership roles in Cargill’s energy, transportation and metals businesses. He was managing director of the worldwide ocean transportation business from 2007 to 2011.

In 2013, he left Cargill to become senior head of global regions at Louis Dreyfus, a privately owned food and agriculture company. He was a member of Dreyfus’ senior leadership team, a member of the Dreyfus risk committee and leader of business development in the grain and oilseed sector. He re-joined Cargill in December 2015.

You spent much of your career in shipping. What did you learn from your time in shipping that helps you in your current job?

I learnt that to be successful in commodity trading, you have to have a physical presence and a deep understanding of what is happening in the physical markets. That is clearly something that helped us as we built up our shipping operations. We had good insights into the physical movement of goods; this helped us with our trading.

Second, I learned the value and importance of building customer relationships. We were an operator, not an owner, of ships, and we had to provide our customers with a better service than any ship owner could. Sometimes it was on price, but more often it was flexibility. I also learned the importance of having very strong supplier relationships. At Cargill we treat our suppliers as if they were customers.

What does your current position entail?

Cargill is made up of four divisions: agricultural supply chain, animal nutrition, protein and salt; and food ingredients and bio-industrial. I oversee the agricultural supply chain business, what I would call the “original” Cargill. It includes everything that relates to grain, oilseeds and agricultural products, from origination along the whole supply chain to destination and distribution. It also includes all our oilseed crushing activities around the globe and includes our sugar business, Alvean, a joint venture with Copersucar, as well as our palm business.

Also, I am a member of what we call the Cargill Executive Team, a group of ten people who are accountable for strategy and who oversee the global enterprise.

What in your career has been the most challenging and what has been the most fun?

That’s a good question. I had the most fun in the shipping business. It was such a phenomenal time. I like businesses where you can invest and grow.

Without a doubt, the position I have today is the most challenging, simply because of size and accountability. It takes a huge amount of effort to grasp and understand the complexities around the world, and to manage all the different elements that impact agriculture markets. In addition, since I took on this role, we have had to make some pretty tough decisions around our portfolio of businesses. There are certainly areas where we continue to grow, but we have also taken some assets out of our portfolio. That is never fun. It often comes with job losses. Even so, although we have been managing the portfolio, our overall business has continued to grow.

Today’s environment is in itself a challenging one for commodity traders. The margins are thin, so you have to be on your toes. That puts a lot of pressure on me personally.

How have you managed your work / life balance—the stress?”

Commodity trading requires a high level of resilience. Markets don’t always go in your favour, and that can be very stressful.

I have been very fortunate in that I can see the relativity of things. I can go back home in the evenings, have dinner with my wife or family and I can let things go by. I can empty my brain of work. It doesn’t always happen, but generally speaking I can relax.

I do some exercise. I play golf. I am a mediocre player—a handicap of 15—but I enjoy it. I also spend quite a bit of time in the gym, although apparently not as much as Chris Mahoney. I love hiking. Working here in Geneva is great because it allows you to get out into the mountains in the weekends.

Good traders only talk about their bad trades—what was your worst?

I have had bad trades, but I am not sure that I want to recall them! Maybe I could tell you instead about what could have been anyone’s worst nightmare of a trade. This was back in 2009 when I was in charge of the shipping business and we had a lot of ships chartered out. Shipping rates collapsed: Capesize rates dropped from $200,000 per day to $5,000 per day in one month. Our market exposure was huge and we were worried that our charterers would default. We had to manage that exposure and ensure that we got contract performance. It took a year out of my life, but by and large we came out okay in the end.

Are markets your “passion” in life—or is it golf?

Neither! My family comes number one in my life, so if I have a passion at all, it is for my family. Managing my work / life balance has been one of the biggest personal challenges. It is tough to find the right balance. We have all made the mistake at some stage in our careers of not spending enough time with the family. But the older I get, the more I understand the importance of family. Even though my children are now grown up, I love seeing how they are getting on.

I am fascinated by—rather than passionate about—markets. I always have been. There are so many different variables that impact price. I enjoy the intellectual challenge of trying to work out what variable will have the most impact at any given time.”

How have the grain markets changed since you began in 1987?”

Although this may surprise you, I don’t think they have changed much; the business models have not really changed. Cargill’s function for the past 150 years was to be a global supply chain manager – to move food from farm to fork. Cargill has never farmed, except in the palm oil business where we operate plantations in Indonesia and pride ourselves on setting the highest standards in the industry. Instead, we build relationships with farmers, we acquire grains and oilseeds from them, we store them, we trade them, hedging our risk on the futures exchanges. We transport them, and we arbitrage between domestic and world markets. That has been what we have always done and that is still what we do!

What has changed a lot recently is the availability of new technology and data—and new ways to analyse that data. Cargill has always been at the forefront of data collection and analytics. We have always understood the value of data, whether proprietary information on the back of the businesses we are involved in, or publicly available information, such as weather.

Today, there is much more data available, and we have to able to analyse it, but our basic supply-chain business model has not changed.

Having said that, I believe the biggest change in the grain business is yet to come. With advances in technology the requirements to be successful will change, as will the services that you provide to your customers. The newer generation of farmers are latching onto technology in terms of production, and they now want to transact in a different way than they used to transact. That is all changing. Those relationships are going to change along with technology.

Is there going to be consolidation?

I think the market will consolidate to deal with excess capacity, but please don’t ask me how that will happen because I don’t know. It doesn’t have to be among the big five or six companies.

The last time we were in a situation of excess capacity was in the late 1980s and 1990s. We saw two huge players exiting the market because they no longer thought that the risks were worth the rewards. Could that happen again?

 Players come and go – that will never change. The way that the industry manages risk is going to have to change. In today’s world, you need the right talent, as well as investment in IT systems. In that sense, scale is critical—along with a physical presence. It will become increasingly difficult for companies with no scale or significant physical presence to participate in this business.

However you have to guard against bureaucracy. You can’t let bureaucracy stifle trading or discourage talent. There are still things we at Cargill must do to improve, but we know that adding layers of bureaucracy adds to costs. You can’t blow up the costs, stay competitive and be successful.

The full interview will be published in my upcoming book, “Out of the Shadows: The New Merchants of Grain.”

© Commodity Conversations ®