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May 27, 2019May 19, 2019

Secrets and conspiracies

OK, I had to do it. I couldn’t write a book* about commodity trading without (finally) reading The Secret Club that Runs the World—Inside the Fraternity of Commodities Traders by Kate Kelly, formally a journalist with the Wall Street Journal. The book was published in June 2014, so you may ask why it took me so long to get around to reading it. The answer is that the title put me off. It reeks of a conspiracy theory; it suggests that the commodity traders work together to secretly “run the world.”

But it wasn’t just the title that put me off; it was also the advertising blurb. The publishing company writes, “… if the individual participants in the great commodities boom of the 2000s went unnoticed, their impact did not. Over several years the size of the market exploded, and so did prices for raw materials—raising serious questions about whether the big traders were intentionally jacking up the cost of gasoline, food, and other essentials bought by ordinary people around the world. What was really driving all those price spikes?”

All sensational stuff! The advertising blurb adds that the author “takes us inside this secretive inner circle that controls so many things we all depend on”.

Imagine my surprise, therefore, when I finally read the book and found that it wasn’t the conspiracy-accusing, and industry-demolishing, book that the title suggested. In fact, it was more like a cross between Gala and Vanity Fair magazines.

I recommend that you read the book if you are, for example, interested to know that the fiancée of one hedge fund manager went to Paris three times to have her wedding dress fitted, but eventually chose a dress that was off the peg. Or that the same hedge fund manager decided not to drive his Bugatti in the South of France for fear that gravel from the driveway would chip the car’s paintwork.

It is a nice book, fun and easy to read, and as entertaining as celebrity gossip always is. But I am afraid you won’t learn much about commodity trading from it. Nor will you learn anything about the secret club of commodity traders that rules the world.

So why the misleading title and advertising blurb? Probably because the publishing house knows how to sell books—and they know that everyone likes a conspiracy theory. They know that people like to believe that secret clubs—or groups of powerful, often sinister, people—control our lives, and indeed really do rule the world.

The only problem is that they don’t, and it was therefore impossible for Kate Kelly to write a book that lived up to its title.

The political scientist Michael Barkun has argued that people like conspiracy theories for three reasons. He writes,

“First, conspiracy theories claim to explain what institutional analysis cannot. They appear to make sense out of a world that is otherwise confusing. Second, they do so in an appealingly simple way, by dividing the world sharply between the forces of light, and the forces of darkness. They trace all evil back to a single source, the conspirators and their agents. Third, conspiracy theories are often presented as special, secret knowledge unknown or unappreciated by others. For conspiracy theorists, the masses are a brainwashed herd, while the conspiracy theorists in the know can congratulate themselves on penetrating the plotters’ deceptions.”

There is certainly no shortage of conspiracy theories in our commodity markets. As Dan Morgan wrote in Merchants of Grain, it explains why trading “companies…stay in the shadows most of the time. Perhaps it was the ancient nightmare of the middleman-merchant that made them all so secretive—the old fear that in moments of scarcity or famine, the people would blame them for all their misfortunes, march upon their granaries, drag them into the town square and confiscate their stocks.”

Unfortunately, there can often be an anti-Semitic element in this, particularly as many traders and financiers are Jewish. Daniel Ammann touched on this issue in his book, The King of Oil. He wrote,

“For centuries Jews in Europe had suffered from discrimination. They were unable to become farmers, as they were forbidden from owning land. As they were excluded from the craft guilds, they were unable to become craftsmen. The Catholic Lateran Council of 1215 stated that Jews were not allowed to carry out the most important economic activities of the time. They were however permitted to perform one function that was proscribed for medieval Christians: making loans with interest. Thus the Jews became moneylenders and traders in the absence of other options.

“It is one of the ironies of history that the persecution and expulsion of the Jews is what made such an efficient trading community possible. King Edward I of England expelled the Jews in 1290, and the French monarchs Philip IV and Charles VI chased them from fourteenth-century France….Sephardic Jews were forced to leave Spain in 1492. By the onset of the modern era, the Jewish Diaspora was greater than that of any other people. The scattered Jews had a trading tradition that was second to none and sufficient confidence to enable trade over large distances and periods of time.”

But I will lead the last word to Yuval Noah Harari, author of Sapiens—A brief History of Mankind. He writes,

“As a historian, I’m sceptical about conspiracy theories because the world is far too complicated to be managed by a few billionaires drinking scotch behind some closed doors.”

* I hope to publish Out of the Shadows: The New Merchants of Grain later this year

May 23, 2019May 23, 2019

Commodity Conversations Weekly Press Summary

Wilmar topped a 50-company list as the Singapore-based public company with the highest human rights disclosure standards. The group was ranked second – right after Sime Darby – in the ASEAN category. Wilmar’s chief sustainability officer pointed out that several of the highest ranking companies were involved in the palm oil business which showed that the industry was responding to consumer concern and becoming more sustainable.

Olam has issued USD 120 million in five-year fixed-rate notes to nine private investors and will use the funds to service its debt, among other things, the company said. Meanwhile, Cargill announced it was investing in cultured meat startup Aleph Farms, marking its third investment in the non-animal protein business after investing in Memphis Meats and Puris.

Nestle Brazil will be launching 25 new projects in 2019 and continues to look for potential acquisitions with a focus on organic and healthy products. A company official added that producing organic food on a large scale was a challenge, however.

In the US, organic food sales reached a record USD 48 million in 2018, up 6% on year. The Organic Trade Association said that thanks to millennials and social media the USDA Organic seal was becoming increasingly important. “Organic is now considered mainstream… In 2018, there was a notable shift in the mindset,” the association said. Interestingly, the organic market is also affected by the shift to vegetable protein with sales of organic animal protein almost stagnant.

In the UK, the ice cream brand Wall’s has tied up with two NGOs to launch a “Vanilla for Change” program to support sustainable vanilla production in Madagascar, help the farmers involved in growing the crop as well as support education in the UK. Each ice cream will have a “Track Your Impact” bar code that consumers can scan to get more information on the program. “Vanilla for Change is the first step to demonstrate our commitment to fairness across our supply chain,” Wall’s said.

Coca-Cola Amatil will be setting up some 10,000 rooftop solar panels across its bottling plants in Australia. This will help the group reduce carbon emissions but also save some AUD 1.3 million in electricity costs. By 2020, the aim is for 60% of the energy used to be from renewables or from low-carbon sources, up from 56.3% in 2018. Separately, Netflix has tied up with Coca-Cola to promote the former’s new season of Stranger Things as well as the latter’s relaunch of its New Coke. There won’t be any straightforward Coke ads on Netflix, however. Instead, the brand’s presence will be felt in the series.

US-based sustainable agriculture group Indigo Ag is working on building a ‘living map’ of the global food supply through satellite imaging and geospatial intelligence. The company said that the aim was to improve forecasting and market transparency to reduce the volatility and uncertainty of farming. The startup topped CNBC’s list of most disruptive companies last week.

A new study found that even if you’re careful when choosing your pre-prepared meals and look out for items that are low in sugar, falt and salt, you’re still likely to be consuming 500 calories per day more when eating ultra-processed foods. This is because the body produces fewer appetite suppressing hormone when ingesting processed food which means people tend to eat more of it. The scientists are not sure why this is the case, although they guessed it could be because processed food is easier and faster to eat, making it harder for the brain to register the quantities. Romania is one country looking to actively get people to shift to a healthier diet. The government just announced it would reduce the Value Added Tax (VAT) on healthy and local fresh foods from 9% to 5% to promote local agriculture and help reduce rising obesity rates.

The US Food and Drug Administration is set to start looking at how to regulate the cannabis component CBD in food on a federal level at the end of this month. Some food companies, such as Mondelez, already said they were looking into adding it to snacks and the substance is becoming increasingly popular in drinks and sweets. A Rabobank report argued that the new trend was blurring the line between the pharmaceutical and food markets. But with a 2018 study suggesting that almost half of Americans were keen to try edible cannabis, the market is expected to grow exponentially.

This summary was produced by ECRUU

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May 22, 2019

AgriCensus Report

Cofco, Sinograin snap up South American soybeans as trade talks rot

Sinograin and Cofco have started to aggressively snap up South American soybean supply with at least eight cargoes being bought up from Argentina and Brazil in the past five days for nearby loading on fears that stocks could dwindle.

Five China-based market sources told Agicensus on Friday that the two-state-owned buyers had been sitting on their hands and avoiding contracting South American beans as they were waiting on a political signal to buy millions of tonnes of US soybeans.

However, last week’s breakdown of talks between the US and Chinese governments has dashed fears of a resolution that could reopen Chinese markets to US supply, and has thus changed that dynamic.

“Sinograin and Cofco resumed buying a large amount of South American beans recently because they had previously saved capacities hoping to buy US beans once the [trade] talks are done. Hence, they did not buy enough beans for front-months,” said one market source with knowledge of the matter.

China’s government had pledged to buy 20 million mt of US soybeans as a goodwill gesture to kickstart trade negotiations with the US.

But with only 12.5 million mt contracted – and a large part not expected to arrive until later than August – Cofco is now believed to be short beans.

“I heard they were forced to buy Brazil. The earliest vessel arrivals (if bought now) will be July 9th. Their supply could be cut out by the end of June,” said a second market source.

“Cofco apparently bought 4-5 cargoes on CFR basis on Thursday”, the same source added.

Cofco has been active in the market this week with several deals reported out of both Argentina and Brazil on both an FOB and a CIF basis – a dynamic that has seen Brazilian soybean prices rally 7% in the last week.

Out of Argentina, Cofco bought a cargo at 46 c/bu over futures on Thursday, equivalent to $325/mt and up 6% on the week.

While out of Brazil several deals were heard on a CFR basis at 177 c/bu over July futures for June loading and 6 cents higher for a cross month shipment for June/July equating to $373-375/mt CFR North China, also up 6% on the week.

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May 20, 2019May 19, 2019

Wheat weirdness

As part of my background research for my new book*, I stumbled on the novels of Frank Norris. Born in Chicago in 1870, Mr Norris travelled widely as a journalist; as a news correspondent in South Africa (1895–96) and as a war correspondent in Cuba during the Spanish–American War in 1898. As a writer, he had planned, in his own words, “to write three novels around the one subject of Wheat. First, a story of California (the producer); second, a story of Chicago (the distributor); third a story of Europe (the consumer) and in each to keep to the idea of this huge Niagara of wheat rolling from West to East.”

The Octopus, the first volume in the trilogy, was published in the spring of 1901. It centred on the early wheat farmers in California and their battle with the railroads. The second, The Pit, was published posthumously after Norris died in 1902, at the age of 32, from a ruptured appendix. He left The Epic of the Wheat trilogy unfinished.

I wouldn’t recommend either The Octopus or The Pit to anyone other than hardened wheat fans. Both are overly long—Kindle estimates that The Octopus is over a ten-hour read—and verbose. They are a difficult for a modern reader:—and I include myself in this—anyone with an attention span more in tune with Twitter than early 20^th century American literature. Another difficulty is Norris’s writing style: pretentious—and sometimes plain weird. He describes the wheat as follows:

“There it lay, a vast, silent ocean, shimmering a pallid green under the moon and under the stars; a mighty force, the strength of nations, the life of the world…wheat! Indifferent, gigantic, restless, it moved in its appointed grooves. Men, Lilliputians, gnats in the sunshine, buzzed impatiently in their tiny battles, were born, lived through their little day, died and were forgotten; while the wheat, wrapped in Nirvanic calm, grew steadily under the night, alone with the stars and with God.”

His description of the Chicago Board of Trade wheat pit is just as pretentious,

“There it went, day after day. Endlessly, ceaselessly the Pit, enormous, thundering, sucked in and spewed out, sending the swirl of its mighty central eddy far out through the city’s channels…All through the Northwest, all through the central world of the Wheat the set and whirl of that innermost Pit made itself felt…Because of an unexpected caprice in the swirling of the inner current, some far-distant channel suddenly dried, and the pinch of famine made itself felt among the vine dressers of Northern Italy, the coal miners of West Prussia. Or another channel filled, and the starved moujik of the steppes, and the hunger-shrunken coolie of the Ganges’ watershed fed suddenly fat and made thank offerings before ikon and idol.”

As for weird, his description of the spring planting takes some beating:

“One could not take a dozen steps upon the ranches without the brusque sensation that underfoot the land was alive, roused at last from its sleep, palpitating with the desire of reproduction. Deep down there in the recesses of the soil, the great heart throbbed once more, filling with passion, vibrating with desire, offering itself to the caresses of the plough, insistent, eager, virtuous. Dimly one felt the deep-seated trouble of the earth, the uneasy agitation of its members, the hidden tumult of its womb, demanding to be made fruitful, to reproduce, to disengage the eternal germ of Life that stirred and struggled in its loins.

“It was the long stroking caress, vigorous male, powerful, for which the Earth seemed panting. The heroic embrace of a multitude of iron hands, gripping deep into the brown warm flesh of the land that quivered responsive and passionate under this rude advance, as robust as to be almost an assault, so violent as to be veritably brutal.”

Weird, although it did reflect the then common belief in a Mother Earth, or Mother Nature, as the (female) force that fed and nourished us. Mr Norris continues with a (less pornographic) description of ploughing on one of the ranches:

“The ploughs, thirty five in number, each drawn by a team of ten (horses), stretched in an interminable line, nearly a quarter of a mile in length. They were arranged, as it were, en echalon—not one directly behind the other, but each succeeding plough in its own width farther in the field than the one in front of it. Each of these ploughs held five shears, so that when the entire company was in motion, one hundred and twenty five furrows were made at the same instant.”

Today, the ranch would probably still use 300 horses for ploughing, but all in one tractor.

There is a scene in The Octopus where a group of Californian ranchers are discussing how to combat the railroads that are squeezing them on freight rates. One rancher suggests sending their wheat in the other direction, to China. He explains,

“At present all our California wheat goes to Liverpool, and from that port is distributed all over the world. But a change is coming; I am sure of it. Our century is about done. The great word of the nineteenth century has been Production. The great word of the twentieth century… will be Markets. As a market for our wheat…Europe is played out. Population in Europe is not increasing fast enough to keep up with the rapidity of our production. The result is over-production. We supply more than Europe can eat, and down go prices….The remedy is not in curtailing our wheat areas but in this: WE MUST HAVE NEW MARKETS, GREATER MARKETS. For years we have been sending our wheat from East to West. We must march with the course of Empire, not against it. We must look to China!

“Send your wheat to China! Do away with the middleman, break up the Chicago wheat pits and elevator houses and mixing houses. When in feeding China you have decreased shipments to Europe, the effect is instantaneous. Prices go up in Europe…We have the key; we hold the wheat…Asia and Europe must look to America to be fed.”

The result, Mr Norris wrote, would be:

“The farmer suddenly emancipated, the world’s food no longer at the mercy of the speculator, thousands and thousands of men set free of the grip of Trust and ring and monopoly acting for themselves, selling their own wheat, organizing into one gigantic trust themselves, sending their agents to all entry points of China.”

So Frank Norris’s books aren’t totally weird. Over 100 years ago he was already predicting both the rise of China and the disintermediation that would occur in the grain trade!

*Out of the Shadows: The New Merchants of Grain, will be (hopefully) published later this year

May 16, 2019

Commodity Conversations Weekly Press Summary

Olam saw better results in the first quarter with net profit 6.9% higher than the same period last year, helped by a strong performance in the edible nuts and cocoa segments. In the quarter, the group acquired Indonesia’s largest cocoa processor and made a proposal to buy Nigeria’s Dangote Flour Mills, while it closed its sugar, fundamental fund and wood product businesses.

Wilmar also reported good results with earnings increasing 26% compared to last year thanks to better performance in the sugar and tropical oils business units. The oilseeds and grains segment did not perform as well, in part due to the African swine fever outbreak in China. Nonetheless, analysts suggested that Wilmar was in a good position to deal with trade tensions and that it would continue to see good results.

In contrast, experts argued that ADM was in a vulnerable position amid the breakdown in talks between the US and China. The firm weathered the trade disruptions with a better-than-expected performance last year, but this year has seen the added effects of the Midwestern floods and a struggling ethanol market. In response, the CEO highlighted that ADM was looking at acquisitions in the speciality ingredients sector, while possibly spinning off its ethanol business.

The market reacted abruptly to news of the US escalating tariffs and China’s retaliation but analysts estimate that commodity tradeflows should not be affected as most products were already under some tariffs. In addition, traders were already limiting new shipments between the two countries amid the uncertainty. Nonetheless, the viability of long term investments is now being questioned as the dispute could last for years.

US farmers are particularly worried because they expected the situation to be resolved by now, while recent weeks saw more floods affecting the Mississippi River. The government had offered growers compensation for the trade war last year, and the President mentioned that the state might spend up to USD 15 billion to buy crops this year which could be sent as international aid. The reaction from experts was quick and unanimous: buying crops to send to developing nations will backfire by upsetting world markets, and would be ineffective because the crops concerned – mainly soybeans and corn – are not for human consumption.

Moreover, dairy farmers in the US could feel the impact of the African swine fever in China for years, according to Rabobank. A lot of livestock feed is made from milk, such as whey permeate, whey powder and lactose, and the hog population in China could take years to fully recover. Exports of US whey and permeate already dropped by about 60% in March.

While some countries are busy imposing new tariffs, Chad announced this week that it removed all the import duties on major food staples like rice, flour, cooking oil and dates. The move is seen as a means to preempt shortages and the possibility of protests, such as the ones that led to the removal of Sudan’s President. Another trade news surprised the market this week, as Australia reportedly imported a shipment of wheat from Canada. Usually one of the biggest wheat exporters, Australian prices surged because of the prolonged drought.

The Australian agriculture minister recently told reporters that the country produced “the most environmentally and ethically sustainable food and fibre in the world”. However, AAP FactCheck ruled that the claim was false. The Food Sustainability Index (FSI), published by The Economist Intelligence Unit, ranks Australia as 13th out of 67 most sustainable, while the Yale Centre for Environmental Law and Policy ranks Australia as 53rd out of 177.

After the recent successful IPO of Beyond Meat, firms have been quick to announced new investments in the sector. Cargill invested in Israel’s Aleph Farms, which makes steaks from cattle cells in a lab, Impossible Food raised a further USD 300 million which valued the company at USD 2 billion and McDonald’s will start selling a new vegan burger made by Nestle in Germany.

Among all the excitement, some plant-based food producers are starting to worry about the availability of a key protein source: peas. Analysts estimate that global pea demand could quadruple by 2025 as firms moved away from soy as a protein source. Northern countries such as Canada, France, Belgium and Germany could become major pea growers, although activists are now highlighting that peas contain just as much herbicide residues as other crops. A food producer also noted that pea protein was nothing special and that it could be substituted for mung bean, brown rice, mustard seeds or lentils.

Burger King also announced that it was expanding sales of Beyond Meat Whoppers in the US. But it made a much more exciting announcement in Mexico as it started to deliver burgers to people stuck in their cars in traffic. It now plans to test the project in Sao Paulo, Los Angeles and Shanghai.

This summary was produced by ECRUU

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May 15, 2019May 15, 2019

AgriCensus Report

ANALYSIS: Are US soybean ending stocks too low at 995m bu?

Last Friday the USDA published its first pass at global production and supply of soybeans for the 2019/20 marketing year.

Record stocks this year and next are on the cards, with US soybean ending stocks this year expected to fall just short of 1 billion bushels at 995 million bushels.

That will feed into substantial ending stocks next year of 970 million bushels: and that comes out even with a chunky 5% fall in production slated for next year.

To put that figure into context it is more than three times the size of soybean stocks at the end of the 2016/17 marketing year – before the trade war started – and equivalent to almost six months of domestic use.

But given the report was written before the escalation of the trade war between China and the US, are even these massive figures too low?

Last Wednesday, China’s government said it would retaliate against President Trump’s plans to tax more Chinese imports and on Monday the ministry of finance announced a raft of new tariffs.

But beside those retaliatory measures, few traders think China will make good on its politically-motivated goodwill purchases of soybeans that have been booked and not shipped.

Out of the 20 million mt of US soybeans China said it would buy during previous negotiations, it has to date contracted to buy just 12.5 million mt, according to USDA figures.

Given US exports sales for the current marketing year stand at 45 million mt versus USDA estimates made before the escalation of the trade spat 48.3 million mt, the ending stock forecast doesn’t take into account too much additional demand.

But that likely doesn’t take into account the prospect of cancellations of those goodwill purchases.

Out of the 12.5 million mt that have been contracted, just 5 million mt has been shipped, leaving 7.5 million mt to load out of US ports in the next 16 weeks if the USDA’s forecast ending stocks of 995 million bu is to be reached.

“As far as I can see, there are almost no fresh trades for US corn or beans from June onwards,” a US-based market source told Agricensus.

Given that dynamic, should China pull the rug on the existing purchases it is very likely that the psychologically-significant level of 1 billion bushels in ending stocks could be reached.

Brazil to benefit?

China has bought 42 million mt of those beans from October through April, and with five months to go it is expected to take the same again, according to government forecasts published Friday.

With China’s National Grain and Oil Information Centre estimating May and June deliveries at 7.5 million mt and 8.5 million mt, respectively, 27 million mt will need to land between July and September if the import target of 85 million mt is to be reached.

With those delivery dates equating to May through July loading out of Brazil or the US Gulf, and with Brazil having exported just 25 million mt out of a 70 million mt projection so far, Brazilian farmers will easily be able to cater for additional Chinese supply.

On Friday, in anticipation of a spike in Brazilian demand, soybeans traded on an FOB basis at the port of Paranagua in a huge 100,000-mt clip.

“Huge volume on June,” said one market source.

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May 13, 2019May 11, 2019

A conversation with Kristen Eshak Weldon

Part Two: The future of food

“Joining Dreyfus is a tremendous opportunity for me in terms of innovation and disruption,” Kristen told me, “and my initial focus is on the future of food.”

“So where do you start?” I asked her. “You arrive at LDC, you are given a long business title and then what?”

“The first thing I had to do was to understand what makes LDC successful as a company. I initially spent very little time in London and instead tried to go to the places where LDC has a major presence. I visited the industrial assets and wanted to understand the industrial processes, but more importantly I wanted to meet the people and understand the culture of the company.

“During this initiation period I realized that people were often working on the same challenges in different regions, but without necessarily sharing their experiences. It is essential that we leverage best practices across regions, so my first task was to try and link the dots.

“The second thing I had to do was to define our investment thesis. The future of food topic is so vast, there are so many things we can be doing. Upstream is logical in terms of looking at helping farmers to be more efficient and more effective, but it is a really crowded space, and more the domain of the seed and technology companies. The downstream part has more opportunities and is adjacent to what we already do, but we have to decide what is relevant to us, and where we can be impactful.

“Could you tell me a little about your company’s investment in MOTIF?”

“I joined LDC when the due diligence was nearly done. This investment is really exciting, cutting edge and I would place it on the far right hand side of our range of opportunities as it relates to adjacency. MOTIF leverages biotechnology to create innovative ingredients that replicate animal proteins in terms of texture or taste. The company is based in Boston and was the second start-up to launch from Ginkgo Bioworks. Investing in MOTIF was a way for us to help us understand more about the future of food.”

“The other agricultural commodity traders have already been serial acquirers in the sector, moving into specialty areas. What will you do differently?” I asked.

“Our intention is not to provide all of the F&B companies with a blanket solution for all their specialty ingredients, but we will do it in specific areas and regions. And we will do it differently. We are looking to work in partnership with other companies in the form of joint ventures, or by bringing in external co-investment capital on the innovation side. This will allow us to move quickly.”

“Don’t you think LDC is starting the process a little late in the game compared to your competitors?”

“Maybe, but one thing that gets drummed into your brain at business school is that there is no such thing as a first mover advantage. That and “fail fast.” I would have liked to have had some lessons learned from previous acquisitions, but we are certainly not too late. The timing is still right, and we can add value in the areas and regions that are less trafficked.”

“In the late 90s Continental Grain decided that the risks in commodity trading weren’t worth the rewards, and they sold their commodity trading operations to Cargill. They then became a major investor in the faster growing parts of the food chain, almost as a venture capital fund. Is that something that LDC might consider doing, selling off their bulk handling operations?”

“Absolutely not. The trading part of our business is the DNA of our company. That won’t go away. When we look at new areas we have to ask what we bring to the table and how, are they adjacent to what we know and do best. We can bring industrial scale to a business, as well as our risk management skills. Our geographical footprint helps massively. We already operate in countries where a start-up may not be able to go by themselves—countries where we already understand the regulatory landscape, the political issues etc.”

“What about brands?” I asked. “LDC has a crushing plant in China, and if I understand correctly your plan is to take beans all the way from Argentina through to branded bottled oil in China. That’s a new venture for you: a branded consumer product.”

“Branded consumer products are not new to LDC per se. Over the years, we have created a number of branded consumer products, including edible oil brands “Vibhor” in India and “Vila Velha” in Brazil, or “Zephyr” coffee in the US, together with rice and sugar brands. Today, we plan to go downstream in a more structured approach where we leverage our matrix structure and take experts from our platforms that know these products, and then use our regional resources that understand local consumer demands.”

“And that leads me on to my most important question: what does the consumer want? Is it sustainability, health, human rights, a fair income for farmers, or what?”

“You are asking the wrong question. Different consumers want different things. That’s what makes this job so interesting, and provides so many opportunities.

“First, it depends on where you are in the world. If you look at Europe and the US, then health is probably the number one issue, followed by environmental sustainability and human rights. Farmer welfare probably comes last but that does not mean that it is not important. In China and other Asian countries, consumers are looking closely at quality and safety, for example. In the poorer parts of the world, the first question usually is, “How can I meet the daily needs of my family?”

“Second, regardless of where they are, different people have different priorities. They may be vegetarian, vegan, flexitarian, or whatever. There are opportunities in providing different consumers with different solutions.

“As a company, our downstream approach has to be crafted differently for each region and for each market segment. At the same time we have to keep a focus on the macro picture of feeding the world safely and sustainably. We have to be aware of what our global goals are. We have to look at the entire value chain and where it is impactful.

“Everyday when you leave the office you should ask yourself, “Am I doing the right thing? Is what I am doing beneficial, and do I feel good about it?”

“That is what is really important about what I am doing at LDC, especially on the innovation side. We want to know that we are delivering a food product in a safe and environmentally sustainable way, that we know exactly where it comes from, and that the labour that produced it is being paid market wages.

“I want to be someone that does positive things, and I want to work with aligned parties that share our values, whether it is the companies that we invest in, or fellow investors in these companies.”

“Thank you Kristen for your time.”

May 9, 2019

Commodity Conversations Weekly Press Summary

Bunge reported a net profit of USD 45 million in the quarter ending March 31, up from a loss of USD 21 million last year, mostly thanks to better margins in the oilseeds segment. The firm appointed a new chief financial officer as part of another restructure – the second in less than two years. The aim, the CEO said, is to integrate regional operations into a global model which will allow faster decision making.

Louis Dreyfus is reportedly engaged in talks with investors interested in buying equity stakes. Sources say the potential investors might include China’s COFCO or Japanese trading houses. This is part of an effort to move closer to the consumer and focus on emerging markets such as Asia. COFCO, meanwhile, could see some transformations as China is working on a plan to reorganise state-owned commodity companies. Under the change, Sinograin assets could be transferred to COFCO – making it the biggest soy processor in the country.

Still in China, Cargill announced it was building a new premix plant in the Jiangxi Province, another in a series of investment in the country’s feed industry. The plant will focus on young animal nutrition and antibiotic growth promoter-free solutions. This comes at a time when the country is struggling with African swine flu. China’s pig population should fall by some 134 million heads this year, almost 30% of the country’s total population and more than the number of pigs in the US. ADM forecast that China will have to import a lot of meat to compensate, causing prices to surge in places like the US, Europe and Australia. An analyst at INTL FCStone argued this could also force China to make efforts to please the US and settle on a trade deal.

But so far it doesn’t look like this is the case. The US has threatened to impose new import tariffs on Chinese products by the end of the week after the latter went back on some of its earlier commitments. A source said the issue was that China now wanted to make the policy changes through administrative and regulatory actions instead of making legal changes. A policy expert argued this would weaken the deal and make it hard to implement.

The WTO ruled in favour of the US last week on a 2016 case against China’s tariff-rate quotas for corn, rice and wheat. China said it would look into the decision and aim to follow WTO rules but trade analysts are increasingly concerned about the WTO’s ability to ‘handle’ China. Some are even suggesting the organisation should change their rules to deal better with the country and its state-owned enterprises. Brazil, meanwhile, is hopeful that China won’t renew anti-dumping measures on sugar when they expire next year.

One of Olam’s palm plantations in Gabon, which it manages in a joint venture with the government, has been certified by the Roundtable on Sustainable Palm Oil (RSPO). The tradehouse, which aims to certify all of its Gabon plantations by 2021, added that this was Africa’s first certified oil palm plantation to be completely on grassland. In the EU, some environmentalists are worried that the Commission’s ban on palm oil is likely to stall recent efforts to make the palm oil supply chain more sustainable. Producers, namely Malaysia and Indonesia, will likely look for new buyers in homes such as China and India where there is less concern about sustainability.

The European Commission, meanwhile, is implementing a common food waste measurement methodology so that each member state can accurately assess the amount of food that is being wasted every year. In turn, each country will be able to use this information to achieve the EU’s Circular Economy Action Plan to halve per capita food waste by 2030.

The UN warned in a new report that, on top of threatening the existence of some 1 million species, the poor state of our soil could mean that within 60 years most land will be too barren to grow enough crops to feed the world. Some suggest that creating carbon farming tax credits would be a good way to encourage farmers to switch to methods which regenerates the soil’s nutrients. However, some of these methods, such as ‘no tillage’ and using ‘cover crops’, are already spreading as farmers say they lower machine and labour costs and use fewer chemicals. The bonus is that the restored soil can, in turn, absorb significant quantities of greenhouse gas. Bill Gates, meanwhile, is working on a type of crop that could store more carbon.

Vegan meat company Beyond Meat was valued USD 3.8 billion on the first day of its IPO last week – making it the highest US listing since the financial crisis. Analysts argued that part of the hype was thanks to the support of Hollywood celebrities, adding, however, that the company reported losses of USD 30 million in 2018.

This summary was produced by ECRUU

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May 8, 2019

AgriCensus Report

Grain handler The Andersons posts loss on bad weather, weak demand

US grain handling company The Andersons has announced a $14-million loss in the first quarter of the year compared with a $1.7 million loss a year earlier, as pre-tax income in the company’s Trade and Plant Nutrient groups weighed on earnings.

The company, which is divided into a Trade, Ethanol, Plant Nutrient and a Rail Group, said the report included an $8.7-million adjustment related to its purchase of the Lansing Trade Group, which tripled the size of the company’s grain business.

The company’s Trade Group, which comprises more than 50 grain terminals in 11 states across the US, posted a $5.9 million loss compared to a $1.2-million loss a year earlier, with the company saying weak domestic markets, foreign trade uncertainty and the floods in Nebraska took its toll on earnings.

“Income derived from grain originations and the group’s assets was down slightly on limited farmer selling and diminished income from storing wheat; those results also included a $2.2 million insured loss due to property damage caused by heavy rains in Nebraska,” the company said.

The company’s Plant Nutrients Group, which includes fertilizer production, posted a $3.9 million loss versus a profit of $1.1 million a year earlier largely due to cold and wet weather hitting demand.

“Farmers may not have time or the inclination use as much fertiliser as anticipated in the face of low grain prices,” executives at the company said on a conference call on Tuesday.

In terms of the company’s ethanol business, it posted a $2.6 million profit compared with $3.1 million a year earlier, despite what the company said was a “weak margin environment” as the US suffered from an oversupply of corn that is being funnelled into ethanol production.

The company added that it had already hedged 40% of its Q2 ethanol production at “acceptable margins”.

However, Brian Valentine, the company’s vice president and CFO, told investors that any resolution to a trade deal with China would give a boost to ethanol and exports of DDGS.

“Short-term, we think it could be very positive for ethanol if ethanol is imported alongside DDGs,” he said.

“A trade deal with China would be a shot in the shoulder we’ve all been waiting for, especially ethanol,” he added.

The Andersons closed its purchase of the Lansing Trade Group earlier this year, buying out the 67.5% share of the company it did not previously own from Macquarie Bank and Chinese meat processing company New Hope.

AgriCensus Prices Over 500 daily Spot Marker and Forward Curve price assessments for wheat, corn, soy, barley, vegoils, meals and seeds.

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May 6, 2019

A conversation with Kristen Eshak Weldon

Part One: Women in Commodities

Kristen Eshak Weldon is the recently appointed Head of Food Innovation and Downstream Strategy at Louis Dreyfus Company, a title that her father thinks might be a contender for the longest business title in the world.

She was born in New York City and raised in Houston Texas, before going to the Georgetown University in Washington DC. There she was one of about four women and about 200 men in her year to obtain a degree in Finance and International Business. Kristen told me that she had intended to study marketing, but quickly switched to finance because she liked the “concreteness” of mathematics. She added that with a finance degree “your work was done at the end of the day, versus a liberal arts degree where you always had more reading to do.”

“So you’re a mathematician?” I asked her.

“I like facts and being able to resolve problems,” she replied. “In liberal arts you can always ask another question without reaching a conclusion.

“I graduated at the height of the dotcom boom so many of my classmates joined start-ups. I joined JP Morgan where I went into the markets training programme. Everyone else I knew from Georgetown went into investment banking, rather than trading. I was attracted to the lifestyle of trading, being on your toes, making quick decisions, but not necessarily carrying risk overnight.

“I started in Fixed Income, and hated it. It was really boring. I spent my time modelling trades, but in the 18 months that I was there I only did one trade! One of the group’s VPs at the time was moving to commodities, and he took me with him. I started off as a salesperson in the metals group, one of two analysts. It was fantastic. I loved the fact that it was real and tangible.

“I particularly liked commodity balance sheets, understanding the supply and demand, bringing it all together. I also like the precision of a model, when it all comes together. I worked with corporate clients, particularly in base metals.

“I have two younger brothers; they are twins. By this point they had come to New York as well. They are both in the music industry, so we would laugh that we were all touching platinum in some sort of way! I was trading it, and they were trying to make platinum records. They are immensely successful.”

“So you are all high achievers in your family,” I commented.

“Yes, I think my parents are very happy, although they did have their doubts about my brothers when they were younger! We all were raised as one unit, almost like triplets. I was only 16 months older than they were, and I was never treated any differently at home in terms of what I could achieve, or what my parents wanted me to do.

“I remember when I was about nine or ten. I went one Saturday to my Dad’s office where he was C.E.O. of a hospital in Houston. He had a little mini refrigerator in his office, and I was excited about which soft drink I would choose from it. I sat in his assistant’s chair and I told him that I wanted that chair when I grew up. He got really cross. “You should want my chair,” he told me, “Not my assistant’s seat.”

In 2003 JP Morgan asked me to move to London to cover North American and European consumer and producer clients in both base metals and energy. When I was 14 I had come to London to stay with a friend, and I fell in love with it.

“I arrived in London the weekend of the LME Summer Party: July 4^th when the US markets are closed. I was a 25-year-old American woman and I thought, “Oh My God, what have I got myself into?” I stuck it out for as long as I could, but it was tough.

I remember my first LME Dinner, a sea of men in dinner jackets! The drinking went on all night and I got home at 5am, only to turn right around for a breakfast meeting at 7am. I wouldn’t have gone to the Playboy Club, but I was happy to go to the parties. I felt they were necessary to network.

I did my best to fit into this male atmosphere. I think a lot of that speaks to my childhood and my degree. Having two brothers so close in age, our house was full of boys. I was also used to the comments—you know how abusive siblings can be to each other! Then at university I had a lot of male friends. So the banking and trading environments weren’t that alien to me. It was just that the LME was the extreme end of that. The verbal comments eventually got to me. Things like that should not be happening in the 2000s.

Having previously talked to Blackstone about a job in NY, I called my contact and said, “Listen I have made a mistake. I would really like to work with you, but I would like that to be in London.” And he said, “yes”. So I left JP Morgan in June 2004 and joined Blackstone in July. It was a completely different atmosphere from the LME desk at JP Morgan. It was a younger industry.

“I stayed at Blackstone for thirteen and a half years. I built a commodity hedge fund platform. It was great fun. I had a hugely supportive boss. He encouraged me to speak up more in meetings and not to be afraid to ask a question or express a point.

“I remember that I was disappointed not to have been promoted during the 2008 review season. I asked my boss why that was. He replied, “Because you never asked.” So the next year I asked. I was pregnant with my first child, but I made sure I kept my personal life personal so that I would just be assessed on the merits of my performance. I was promoted to Managing Director in 2009 and made a partner in 2013. I was young and I was the first female partner in London!

I knew that Kristen would hate this question, but I asked her any way. “How did you manage your work life balance?”

“When I was pregnant with my second child my husband left his trading position at JP Morgan. We took the view that my career at that point was looking positive. His career was going in a different direction, with trading mostly going electronic. His real passion in life is design and architecture, and we had just bought a new house—a major renovation project. We agreed that he would invest his time into the house project, and I would continue to work. We moved into the house three years after that.

“My husband is around much more for our children than I am right now. I think that it is really difficult if both parents are going full speed. In any case, society is changing. Dads now take much more of a role in family life. (Paywall) Not seeing their kids can be tough for the Dads as well. Child raising is an equal task to be shared.

“In 2017 the commodity hedge fund business was slowing; funds were closing and the environment was becoming more challenging. I thought it would be a good opportunity to step back, clear my head and at the same time spend more time with my family. My boys were growing and as they say, “small kids small problems, big kids bigger problems”. I felt it was the right time to spend a bit more time at home.

“I applied and was accepted for a Sloan Masters in leadership and strategy at the London Business School. The course was amazing. It was a great year for me even if I didn’t spend more time at home!”

“And after that you joined Louis Dreyfus?”

“Yes. I had known Ian McIntosh for some time and he called me around May 2018. We discussed his ideas for LDC, and I shared with him a lot of what I had learned in my Masters course, in terms of innovation and disruption, while keeping the culture of a company. Basically, how you disrupt from within. In October, after he became CEO, he asked me to join. I jumped at the opportunity.

“You have had a fabulous career so far—and a great opportunity in your new position. Can women have it all?” I asked. “A family and a career?”

“Women (and men) can have it all,” Kristen replied. “In my experience, it has been challenging to have it all at the same time.”