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The FT Commodities Global Summit last week in Lausanne once again attracted many of the top players in the industry. The conference has established itself as the “must-go-to” commodity event of the year; it is the only event that I know of where you can get a genuine feel of what is occurring in the wider markets. But not only that, it is the only commodity conference I know of without a single PowerPoint presentation! Paradise!

This year’s event was entitled “Natural Resources in Transition”, and was, as expected, largely focused on the extractive industries: oil and gas, and metals. Electric vehicles were at the centre of the debate, and the effect that they would have on the demand for oil, lithium, cobalt and copper. Just a few years ago, people were discussing when oil production would peak; now the debate is about when demand will peak. The consensus at the conference was that demand will stop growing sometime around 2035, but there was some disagreement as to whether it would then decline or stabilize.

But then consensus is often wrong. At last year’s summit there was a consensus that the supply of cobalt would not keep pace with its demand from battery manufacturers; everyone at that time was bullish on cobalt prices. This year, there was a consensus that, given the right price incentives, supply is far more elastic than you would expect.

Most of the unexpected cobalt production has apparently come from artisanal mining in the DRC, unfortunately the type of mining with the worst safety conditions and greatest prevalence of child labour.

Slowing growth in oil demand is encouraging the trading companies to look more closely at renewable energy sources, and I was surprised to hear biofuels being discussed in a positive light—the first time for many years. With the current agricultural surpluses and low prices, biofuels are once again profitable and, because they help maintain farm incomes, are once again finding favour with politicians. I don’t want to be a pessimist, but that will probably only last until the next spike in food prices. The food versus fuel debate has not gone away; it is only on hold.

In addition to a keynote speech by Johnny Chi, the Chairman of COFCO International, there were three key panels on food and agriculture. The first, a “Leaders’ Debate, was with Ian McIntosh, CEO of LDC, Chris Mahoney, CEO of Glencore Agriculture, and Stefano Rettore, Head of Origination, Trading and Operations at ADM. The discussion was more upbeat than in a similar panel last year; margins have obviously improved, undoubtedly helped by the market disruption caused by the trade war between the US and China.

The main point of disaccord on the panel was the right strategy to follow in response to what appear to be structurally declining margins. As LDC has made clear over the past year, the company is looking to diversify beyond straight trading to become a food company with an integrated supply chain. Similarly, ADM has made a big push over the past years into food ingredients and flavours. Glencore, however, believes their money is better spent on trying to increase efficiency in the portion of the supply chain in which they already operate, rather than seek margins in related businesses.

The second agricultural panel was on Blockchain, and what it could bring to the trading industry. The answer appears to be improved efficiency and security, and lower costs—but no revolution. Also, it was made clear that Blockchain will take time to put into place; it is better to go slowly and get it right rather than rush it and mess it up. All of the major trading companies are cooperating on the project.

The third agricultural panel was on The Future of Food. The panel asked itself the question, “What does the consumer want?” The answer, it seems, is, “It’s complicated.”

There was agreement that environmental sustainability and human rights are now central to the food supply chain; they are no longer a “nice to have, if possible.” However it is not easy to build a truly sustainable and traceable supply chain. It is also expensive, and someone has to pay. Unfortunately that “someone” is rarely the consumer; it is more likely to be the farmer and the trader. (Even so, it still has to be done.)

Apart from a demand for sustainability and the respect for human rights, the future of food is a swirling mass of different trends and beliefs, beliefs that are now held with almost religious fervour.  There is an old saying that “you are what you eat”, but you could now add, “you eat what you believe.”

My takeaway was that the future of food is twofold. It is first “flexitarian”, with meatless Mondays and a greater concern for animal welfare. And second, and perhaps somewhat contradictory, the trend will continue for diets to contain more protein and fewer carbohydrates.  So no respite then for the sugar industry.

Louis Dreyfus Company is due later this week to publish their annual report and accounts for 2018. The company’s CEO told Reuters that year-to-date results had “significantly improved;” he suggested an upturn after a first half sapped by a soy price-hedging effect and emerging trade tensions. To put that in perspective, 2017 group net income was $225 million, excluding the now-sold metals business, close to 2015’s decade low of $211 million and well below a record $1 billion in 2012.

In the late 1970s, when he was researching his book, Merchants of Grain, Dan Morgan had considerable difficulty in obtaining any information from the “shadowy and unknown” grain trading companies. At that time they did not publish financial results.

With the exception of Cargill, they provided minimal assistance, or none at all, in the preparation of his book.

They had nothing against Dan Morgan; it was just the way things were forty years ago. At that time a US Senator said of the grain multinationals, “No one knows how they operate, what their profits are, what they pay in taxes and what effect they have on foreign policy—or much of anything else about them.”

In 1976 the French magazine L’Expansion, called Louis Dreyfus, “a commercial empire of which one knows nothing.”  Pierre Louis-Dreyfus invited Dan Morgan to lunch in his private dining room. The fish with cream sauce was apparently superb, as was the wine, but the journalist left without learning anything of interest about the company.

Georges André, head of André & Cie—and the original “A” of the ABCD group of trading companies—invited Dan to “an excellent lunch of brook trout in a village restaurant,” but all he got out of it was some historical data. ADM—the new “A” in the ABCD group—was no more open. When Dwayne Andreas became CEO of the company in 1974, one of the first things he did was to eliminate a 27-person public relations department.

Dan was granted a one-hour interview with Michel Fribourg, president of Continental Grain, but later received a letter from Continental saying, “It has been decided that we choose not to participate in further interviews with you.” The company had been in the grain business since the start of the nineteenth century, had never published a company brochure.

None of the trading houses were more obsessed with secrecy than Bunge. Dan Morgan wrote that, “Bunge was a private company about which nobody knew and nobody could speak…To Bunge officials public relations meant keeping Bunge out of the limelight.”

But then the company’s controlling families had a particular reason for avoiding the limelight. Five years earlier, in September 1974 in Buenos Aires, the Montoneros—an Argentine youth movement—kidnapped Jorge and Juan Born, 40 and 39 years old respectively, the grandsons of the founding partner and heirs apparent of the company.

Juan Born was released six months later, in March 1975, and Jorge in June 1975. No details were even given as to the ransom paid for Juan, but the Montoneros claimed that the Bunge family had paid $60 million for the release of Jorge. Although that doesn’t sound like much now, it was a huge sum in 1975, equivalent at the time to one third of the annual Argentine defense budget.

It should come as no surprise that after the kidnapping, the family withdrew even further behind a veil of secrecy. Dan Morgan “did not get near the Hirschs or the Borns, the ruling families of the Bunge Company.” The closest he got was an hour-long interview with the president of Bunge’s North American division. After the meeting, Bunge’s public relations agent told him that he had “neither the time nor the inclination for further discussions.”

Compare Dan Morgan’s difficulties in obtaining information with the ease with which Daniel Ammann gained access to Marc Rich for his book, The King of Oil, published in 2010.  Daniel wrote, “These oil and commodity traders…shared their thoughts and their memories with me, opened doors and documents, and explained the technicalities of trading and financing. They tried to show me the big picture, and they revealed their little secrets.”

But then perhaps Mr Ammann was just lucky in his timing. Up until the series of interviews that formed the backbone of his book, Marc Rich had systematically avoided reporters and was, “considered the most secretive trader of the notoriously furtive commodities trading community. For years, no one had ever seen a photograph of him. The media had to resort to artists’ sketches for their reports.”

Glencore, the successor company to Marc Rich, is now a public company, as too are ADM and Bunge. Cargill and Dreyfus are still privately owned, but both act as if they are publicly quoted; they publish detailed company reports and actively interact with the wider community, whether bond investors, clients, banks or journalists. COFCO, the new giant among the grain trading companies, is Chinese-government owned.

All of the large agricultural commodity companies are now active on social media, and actively engage with NGOs on issues related to environmental sustainability or human rights.    

This is a significant change since 1979, when Dan Morgan wrote, “The 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.”

Agricultural merchants are still being dragged into the town square of public opinion, and they are still regularly being blamed for varying misfortunes, but they are now very much out of the shadows.

I hope to publish my new book, “Out of the Shadows: The New Merchants of Grain” this autumn.

I have just finished reading The King of Oil by journalist Daniel Ammann, a book* that tells the story of the legendary and controversial trader Marc Rich, whom the FT once described as “one of the wealthiest and most powerful commodity traders that ever lived”. I would recommend the book to anyone that is interested in commodities.

Daniel Ammann writes,

Marc Rich, born Marcel Reich, the Jewish boy-refugee from Antwerp, barely escaped certain death in the Holocaust…Penniless and unable to speak a word of English, the young Reich fled (with his parents) to Morocco by freighter and, with a great deal of luck, finally reached the United States.

In 1954, at the age of 20, Marc Rich started in the mailroom at Philipp Brothers, at that time the world’s largest trader in raw materials. He worked his way up on to the trading floor in New York, before moving to head up the company’s Madrid office where he started trading oil. Some observers credit Marc Rich with inventing the spot crude market; previously all oil was traded on long-term fixed-price contracts. However, as Daniel Ammann writes,

“The notion of taking risks was as foreign to him as for the entire company, and this was reflected in Philipp Brothers German motto…” It is better to sleep well than to eat well”. The principle was drummed into employees that it was better to avoid a lucrative deal if the risks involved were high enough that they might endanger the entire company.

Marc Rich felt that Phibros was not aggressive enough. He left in 1974 to set up his own trading company, under his own name, in Zug Switzerland. He chose Switzerland because of the low tax rates and the fact that Switzerland was a neutral country;  at that time, it was not even a member of the United Nations. As Marc Rich himself said, “The only bad thing about Zug is the fog.”

Marc Rich & Co was spectacularly profitable from the start, and by the end of the 1970s had thirty offices around the world. The five partners divided themselves between New York (where March Rich himself worked), London, Madrid and Zug.   

In 1983, however, U.S. authorities charged Marc Rich with evading taxes and trading with Iran during the 1979/81 hostage crisis. Rich fled to Switzerland where he lived as a fugitive for 17 years.

Marc Rich admits buying oil from Iran during the embargo, as well as to supplying oil to apartheid South Africa and bribing officials in countries such as Nigeria. However, he argues that all this was legal at the time. For example, the bribing of foreign officials was legal in the United States until the passing of the Foreign and Corrupt Practices Act of 1977. In Switzerland, it remained legal until 2000. And as a non-US company based in Switzerland, Marc Rich & Co was legally (if perhaps not morally) exempt from the embargoes on Iran and apartheid South Africa.

Bill Clinton officially pardoned Marc Rich on the President’s last day in the White House in January 2001. The pardon was highly controversial, but, according to Daniel Ammann, it was the result of heavy lobbying by Israel. Throughout his career, Marc Rich had given large sums to the country, as well as working closely with Mossad, their security services.

For some, Marc Rich was,

 “The capitalist without a country who makes deals with the enemy. The speculator who creates nothing of his own but only acts as an intermediary while profiting from others. The “bloodsucker of the Third World” as he was once referred to in the Swiss Parliament. The perfidious profiteer, who would rather leave his own country and give up his citizenship rather than pay taxes.”

But Ammann takes a more balanced view. He writes,

“Most commodities come from countries that are not beacons of democracy and human rights. The “resource curse” and “the paradox of plenty” are the terms economists and political scientists use to describe the fact that countries that are rich in oil, gas or metals are usually plagued by poverty, corruption, and misgovernment. If commodity traders want to be successful, they are forced—much like journalists or intelligence agents who will take their information from any source—to sit down with people that they would rather not have as friends, and they apparently have to resort to practices that are either frowned upon or downright illegal in other parts of the world.”

He adds,

“The commodity trade is a hard, capital-intensive business with tight margins. Profits of 2 to 3 per cent are considered quite satisfactory during normal times. It is only during unsteady times…that profits are significantly higher.”

The author describes an interview that he conducted with an ex-Marc Rich trader in a New York bar.

“Ethics,” he laughed. Then he pointed to my Diet Coke. “Your Coke can is made of aluminium. The bauxite that is needed to make it probably came from Guinea-Conakry. A terrible dictatorship, believe me,” he said. “The oil that is used to heat this room probably comes from Saudi Arabia. These good friends of the USA hack the hands off thieves just as they did in the Middle Ages. Your cell phone? Without coltan, there wouldn’t be any cell phones. Let’s not pretend. Coltan was used to finance the civil war in the Congo.” Do the people who criticise our work want to know any of this? Or would they rather just pick on us so that they can feel better about themselves”.

By the early 1990s, the legal case against Marc Rich was taking its toll. A difficult divorce and the death of his daughter added to his woes, and the partners began to worry about their company’s future. Marc’s legendry feel for the markets deserted him, as did many of his key traders. A failed attempt to corner the zinc market left the company with $172 million in losses and the firm was struggling. After at first resisting, Marc Rich finally sold his 51 per cent majority share in the company in a managerial buy-out for an eventual total of $600 million.

The first thing that the new owners did was to change the company name to Glencore. The company went public in May 2011 and now has a market capitalisation in excess of $42 billion. 

Marc Rich himself died on 26^th June 2013 at the age of 78. Despite his pardon, he never returned to the US.

But I leave the last word to Daniel Ammann,

“You must be a lucky man,” I said to the most successful and controversial commodities trader that the world has ever seen. Rich…remained silent for some time. Then, almost as if he were talking to himself, the King of Oil quietly replied, “Sometimes.”

*Available on Amazon