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 ®

Jason Clay heads up WWF-US’ work on global markets and trends related to food. He launched WWF’s global work on agriculture, aquaculture, and market transformation for food and soft commodities companies. I spoke to him by phone from Washington DC.

The WWF seems to be an organization that looks for solutions to problems rather than just naming and shaming. Is that a fair assessment?

Naming and shaming is also very broad brush; you can name and shame a lot of people who aren’t actually the problem. If you want to find solutions you have to build coalitions, working quietly and more behind-the-scenes. This is WWF’s strategy. To solve most global problems, everyone should be part of the solution. At least that makes change happen faster.

WWF is a science-based organization. We base our programs on science and research. For us, it is “Get informed, and then get involved.”

WWF has been involved in setting up a number of sustainability certification programs such as the Round Table of Responsible Soy and the Round Table of Sustainable Palm Oil.

The fundamental question is, “Why do we have certification bodies?” The answer is “Because governments aren’t doing their job to protect the planet for future generations.”

Certification is not the best option, but right now it’s the one we have. Can it be better? Sure.

But you once said that the certification agencies are about certifying the top 10 percent, while it’s really the bottom 25 percent that is causing most of the damage and needs the most help.

Unfortunately we are often quite willing to let the perfect get in the way of the good. But once producers start seeing that better practices achieve better results they begin to ask how they can implement them too.

But, at the end of the day the biggest environmental impacts come from the bottom 25 percent. That’s where we need governments. The poorest performing producers either need to improve, or get out. Only governments can make that happen.

What is the role of traders, if any, in this?

Most people don’t understand that commodity traders are very efficient at what they do. The problem is that we’re asking traders to do more than the commodity trading system was designed to do. Commodity trading allowed buyers to purchase a product that is interchangeable with any other ton of the same product. If you buy number two yellow corn, you receive number two yellow corn.

From about 1860 to the 1970s, commodities were defined by physical properties, weights, moisture content, foreign matter, broken pieces, and other physically verified attributes.

Since the 1970s, however, people have begun to ask commodity traders to address such issues as labour conditions (e.g. minimum wages; child labour) and environmental impacts (e.g. pesticides, deforestation, soil health, etc). Buyers are asking traders to verify specific traits that pose reputational risks to retailers and brands that are more inclusive than weights and measures and physical properties.

What are the challenges traders face to make these changes happen?

Trading companies are trying to find ways to put such verification systems in place, but they have two problems. First, they need buyers to commit to more than one off purchases. Depending on the commodity, they need multi-year commitments.

If a trader puts systems in place to verify how a product is produced, it costs money. They need multi-year contracts to offset those costs. Otherwise, the trader could be stuck with this initial cost. If traders could get a five-year contract from a company to buy more sustainable palm oil, soy or whatever, they could amortize their one-off costs over that five-year period.

A trading company may make 1.5 to 3 percent on a single trade. If the verification cost is 1 percent, then on a 1.5 percent margin you’ve already lost more that half of your profit. But if the initial cost can be amortized over five years it gets down to a point where it is negligible. But for that to happen the downstream buyers have to put the money where their mouth is, but most have not done that. That is the issue that traders are facing.

So we have two issues to address. One: how do we turn retailer and brand commitments into actual purchases? Two: how do we get traders to work together without risk of collusion?

From a sustainability point of view we need companies to work together. Companies have to work together to solve sustainability issues. This is not about price fixing. It’s about internalizing environmental externalities into prices.

We have to work together to manage the planet. We can’t manage it one producer, one trader, one retailer, one brand or one government at a time.

You mentioned externalities. Although consumers say they will pay for externalities, they don’t. What could be done there?

If all commodities were produced more sustainably, consumers wouldn’t have a choice. Changing the definition of a commodity could help. Number two yellow corn could also be more sustainable. It is not clear that the price would go up, especially if producer prices for less sustainable products declined because they cost society more. We need to get the price signals right—today sustainable products cost more, but unsustainable products cost society far more. But ultimately, the consumer is the polluter. And the principle is that the polluter pays.

When you see what’s happening, how we’re living at 1.3 or 1.5 planets per year, do you get pessimistic?

Sure, but we only have one planet, and we have to address sustainability issues one way or another. My main motivator is my children’s future, but also the future of all other living things on the planet. This is literally about life on earth.

Thank you Jason for your time.

This is an extract of an interview with Jason, which I will publish in full in my upcoming book, “Out of the Shadows: The New Merchants of Grain”

© Commodity Conversations ®

Part Two of a Conversation with Howard Jay O’Neil

“Let’s talk a little about ASF, African Swine Fever,” I suggested. “Isn’t that a bigger problem for US farmers than the trade wars?

“It is a major problem. In 2017, China imported 95 million tonnes of soybeans and we were expecting Chinese demand to exceed 100 million tonnes in 2019. But that was prior to ASF and the tariffs. We now expect China to import 80-84 million tonnes, a substantial drop.

“Both the U.S. and South America have been ramping up soybean production to supply a 95 to 100 million tonne China market, and now we have only 80-84 million. I don’t know whether you would call it a perfect storm, but ASF and the trade wars coming together at the same time are having a major impact on trade.”

“So the situation is similar to the 1980s,” I argued. “We have too many beans and too much infrastructure.”

“I don’t see it as being as bad as the 1980s and early 1990s when margins were negative across the whole industry. It is true we are going through a downturn in export demand. We have surplus transportation, surplus export capacity and surplus ocean transportation. You only have to read the financial results of the big grain companies to see that profits are challenged. But it is not as dark as it was in the 1980s and early 1990s when profits were negative. Although profits now are poor, they are not negative.”

“What do you think about the idea of giving beans away to poor countries as food aid?” I asked Jay.

“It is always a question of scale and volumes. We have a 900 million bushel carryout on soybeans this year and most expect that to grow to one billion bushels.  That is the largest surplus of soybeans that we have ever had in the US: a 23/25 percent stocks-to-use ratio.  We also have surpluses in wheat and corn. It will take time to solve this problem; it is a multi-year problem. Giving away a few cargoes here and there of beans is not going to solve the problem.”

“What about the introduction of GM crops,” I asked Jay. “Have these contributed to the surpluses?”

“Very much so! As well as improving yields, farmers tell me that when they plant GM seeds they are more confident that they will do well even if the weather is bad. By giving farmers a certain comfort level GM crops have encouraged them to plant a larger acreage and to get more production per acre.

“In addition, we are now planting beans further north and further west than they were planted in the past. Historically in the US we didn’t plant large quantities of corn or beans in North or South Dakota; now we do. The same applies to Western Kansas or Western Nebraska. In the last 15 years GM technology has led to a dramatic expansion of production into areas that previously couldn’t profitably grow these crops.

“Previously these areas could only grow wheat or barley because of the lack of rainfall and the soil type. Now farmers plant GM corn and beans, and they have been displacing barley and wheat areas. The same applies to Canada where the new short season seeds have led to an expansion of soybean production; it may even double in a few years, although admittedly from a low level.

“GM technology has enabled farmers to grow corn and beans in areas that historically they have not been able to. GM technology has also contributed to yield improvements in the traditional growing areas. So GM technology has had a very significant impact—and will continue to have an impact.”

“Why isn’t there any GM wheat?” I wondered.

“If you ask the seed companies they will tell you that corn and beans are much bigger crops by planted acres, and are commercially more attractive to them than wheat. In addition soy meal and corn are largely used for animal feed. Wheat is mainly consumed by humans.

“In 2008/2009 the US farmers did ask the seed companies to develop GM wheat; yields were not increasing as much as in corn and beans, and the US was losing wheat acreage to those two crops. But when they asked the Japanese flour millers, who are major buyers of US wheat, they said they would not buy US wheat if it were GM. As a result, GM wheat was put on the back shelf; as it was considered too market disrupting.

“Some test-plot research on GM wheat has been done in US, Canada and Australia, but so far there has been no commercial production. There have been three what you might call “outbreaks” of GM wheat, one in Canada, one in Oregon and now one in Washington State. An environmental group discovered a few GM wheat plants in among non-GM wheat and alongside a dirt road, but admittedly a significant distance—hundreds of miles—from any GM test sites. No one knows how those plants got there.

“The Japanese put a temporary embargo on US wheat when it was discovered in Oregon, and later on Canadian wheat when it was discovered there. They introduced a testing protocol, but no GM wheat was ever found in any shipment and the embargoes were short-lived.”

“Going slightly off subject, you recently retweeted a cartoon on Twitter showing organic farming using more land because of lower yields. Is that your view?” I asked.

“Organic farming has lower yields than non-organic farming, so you obviously need more land to get a similar production. More carbon is released in the process. A greater agricultural area also means less forest and less biodiversity. Many people believe that organic food is better for them health wise than non-organic. I don’t personally agree with that, but that is the perception among some people and that has created a small percentage of specialized demand for those commodities and products.

“Now changing the subject completely, would you recommend your children to become farmers or merchants, or neither?”

“I have two kids, neither of them have an interest in either farming or grain merchandising. Farming is not a business. It is a lifestyle. It takes place in rural areas, often in isolated areas, takes long hours of hard work, and that is not for everyone. As a result many young people don’t want to continue family farming. They want the social life and types of jobs that can be found in metropolitan areas.

“From an economic standpoint, farming is cyclical. We are currently in a down-cycle with low profitability. As a result, it is difficult to obtain capital to buy land or equipment. The farmers that are doing OK now have been farming for generations; they have low debt. It is not a positive economic proposition to buy a farm now and equip it. You have to like the lifestyle and be in it for the long run.

“As for grain merchandising, yes I would recommend a young person to go into it. In the long-term I  expect it to be a financially worthwhile and intellectually interesting career. But a lot of the grain companies are currently going through restructuring and laying off staff. We are at that stage in the cycle, but we have been through many cycles before, and I trust that we come through it as in the past.

“Having said that, the rise of the US ethanol industry had increased competition for grain in the countryside and made things more difficult for the grain merchants. They are no longer the only buyers.

“Another thing that has changed is that farmers are now storing their crops in their own on-farm storage facilities. Today 55 percent of grain storage capacity in the US is on-farm; only 45 percent is commercial. It used to be easy for merchants to buy cheap grain at harvest time, store it and sell it later. Domestic, as well as export, markets are more competitive now, and handling margins have narrowed.

“An additional problem today is that political interference is difficult to predict. It is impossible to guess how long the trade wars will last. Some trade houses expected the trade war with China to be short-lived; they were wrong-footed when it persisted.

“But taking everything together I have had—and continue to have—a fascinating career in the grain merchandising business. It has been challenging, but it has also been rewarding both intellectually and financially. So yes, I would absolutely recommend young people to join the sector.”

“Thank you, Jay for your time and your input”.

© Commodity Conversations ®