Chris Mahoney – CEO Glencore Agriculture

Chris Mahoney

Part One

Good morning Chris, and thank you for taking the time to talk with us. First question: You rowed in the Oxford & Cambridge Boat Race from 1979 to 1981 and are a four-time winner at Henley Royal Regatta. You won the silver medal in the eight at the 1980 Moscow Olympics. What lessons did your rowing career teach you that have been useful to you as a commodity trader?

Sport for me is a microcosm of life, especially business life. As in everything, the more you put into it, the more you get out; the harder you work the better you become. So the things that you need to do to succeed in sport are the same things you need to do to succeed in business: effort, focus, discipline, and dedication. The beauty of sport is there is little politics, if you are fast nobody can deny it. There is no quick fix, it takes years of effort and hard work to do well in sport; the same in business!

When the Canadian Globe and Mail interviewed you in 2016, the journalist wrote that you looked like you “could empty a grain silo in about 10 minutes with a shovel.” How do you keep so fit, and how does it help you bear the pressure of the job?

I probably exercise five times a week, including cycling at the weekends. When I cycle I go at it hard. And in the gym I don’t sit on the rowing machine for 45 minutes. I do interval training, for example five times 1,000 metres. That is not only better for you but is also less boring! Also, I time and record everything, and I wear a heartbeat monitor.

Ivan Glasenberg, the CEO of Glencore, was a champion race-walker for both South Africa and Israel, and runs one hour every morning with a group of senior managers. Is physical fitness actively encouraged at Glencore?

I believe Ivan runs or swims every morning, there is an office swimming group I know because I have tried and failed to keep up with them when I have been in Baar. We used to run together when we were travelling. I think it is part of the culture, although not for everyone. When you are exercising hard you are not thinking about anything. In fact, if I am not suffering I find it less relaxing!

Marc Rich once famously told his wife when they got married that he could spare the family 30 minutes on a Saturday and 45 minutes on a Sunday. How do you manage your work / life balance?

That is absolutely not the case with me. There was one big transaction, the Viterra transaction, which was an exception. It was an intense six or seven month period during which I spent many weekends in Canada. That period aside, I believe I have always been able to balance my family and my work. I virtually never travel on the weekend—I make a point of that. My family is very important to me.

When you were at Cargill you “invented” the model of modern sugar trading, levering large physical positions against futures positions and then making big profits on the futures. That was very innovative, although the model has pretty much run itself to death now. You could have ended up running Cargill. Why did you leave?

I don’t know that I could have ended up running Cargill. I started in sugar which was relatively independent, and a little apart from corporate Cargill. Working in the sugar division of Cargill at that time was a little bit like running your own company. There was no real interference from above, but at the same time the financing and the corporate support were there. It was ideal.

Cargill likes to rotate their senior managers, and in the mid-nineties I was transferred to the grain division in a regional management role. There are a lot of people in Cargill who know something about grain and, good company though Cargill is, there were too many opinions at that time for my liking. Perhaps unreasonably I found it restrictive and missed the trading and so I left, probably more my fault than Cargill’s.    

Didn’t you at one stage trade coffee?

Yes, you’re right, but for only a short period. Every morning we had to taste different grades of coffee, and one day my colleagues played a trick on me, and slipped in two cups of tea. I couldn’t tell the difference!  Let’s say I was not the best coffee taster in the world!

When you first left Cargill you worked for a short while at Phibro?

Yes, in Westport Connecticut with Andy Hall, who incidentally also rowed for Oxford against Cambridge, but a few years before me. I made the easy choice—which probably wasn’t the right choice—to go back to what I knew: to go back to the sugar business in a pure trading role.

When I joined them, Phibro was part of Salomon Smith Barney, but a few months later they were bought by Travellers Group, and then three months after that they merged with Citibank. These were two big bank mergers and commodities didn’t fit their plans. Andy told me I could stay on, but that I would have to keep the business small, and focused entirely on futures and derivatives. I already believed that a pure derivatives trading business was never going to work in sugar. It had to have a physical base with origination, sales and a distribution book. Guessing whether the market was going to go up or down was never going to work, or at least it was never going to work for me.

So you joined Glencore in Rotterdam. You had moved from Geneva to Westport, and after only a few months moved back to Europe. What did your wife think of that?

She was not very happy. My wife is American—she had been excited about going back to the US, and that was one of the reasons why I accepted the position with Phibro. I remember promising her that this would be our base and this was going to be our life. We bought a nice house in Connecticut, one of those old colonial houses. Our daughter was born there.

But eight months later we talked it over, and both realised that the opportunity with Glencore was just too good to turn down. She was very supportive. We agreed to give it a go for a couple of years, and that if it didn’t work out we would come back to Connecticut. That was 21 years ago. We moved to The Hague. She found it tough for a few years, but stuck with it. The Dutch are easy to get on with, and it is a lovely place to live—great for kids. We love it.

I joined Glencore in 1998 as number two with geographical responsibilities for South America, the FSU and Africa, and became head of Agriculture in 2002.

In 2011 your cotton-trading department lost $300 million, wiping out your total profits of that year. Would you like to briefly explain what happened, and what you learned from it?

We had a large long position in non-US physical cotton hedged in the US futures market. It was a basis, or premium, position—not an outright position—so we believed our risks were somewhat limited. The physical market was tight at that time—both in the US and globally. Our position expressed the view that world cotton was undervalued compared to US cotton.

One company decided to take delivery of the US cotton futures. They had specifically sold US cotton to their customers and wanted US cotton to cover their sales. The problem was that they wanted to take delivery of more US cotton than was physically available for delivery. Rather than swap US cotton for other cheaper origins, which was the economic thing to do in my view, they maintained their long position in US futures and the market went sky high. Non US origins also went up in price, but to nothing like the same extent. A huge differential opened up between US cotton and non-US cotton.

You were head of Glencore Ag at that time, so the problem ended up on your plate?

I was responsible for setting up the cotton desk so it more than landed on my plate. It was my plate. It was clearly my responsibility. We had hired a team from outside, because we didn’t have a cotton business. Clearly with hindsight we should have looked to have developed a cotton team from within, supplemented with outside expertise. Glencore in Switzerland was not happy of course but Ivan supported me in a way that I never forgot. 

How important is corporate culture, and if it is important does it make it hard for mergers to work in the trading business?

Corporate culture is critical and that is one reason why it is challenging to acquire trading businesses. Acquiring assets—a logistics business and supply chain management—is easier. There is also the issue that unless you are willing to double the risk—double the size of the VAR—then one plus one doesn’t necessarily equal two. We also do not feel we need to buy trading expertise as we already have it.

© Commodity Conversations ®

Commodity Conversations Weekly Press Summary

ADM said this week that, contrary to rumours, it was not selling its grain handling business. On the other hand, it is planning on scrapping some roles as part of a restructure to focus on being a nutrition company. The group opened a new high-tech livestock feed facility in Illinois – another addition in a long list of recent investments in animal nutrition. The CEO said that “animal nutrition is one of our key growth platforms.” ADM also invested in food-tech fund Cultivian Sandbox which just raised USD 135 million. A director at Cultivian Sandbox said they were witnessing a “democratization of technology in food” which is helping smaller groups disrupt the establishment.

Cargill too, which just announced new leadership for its Animal Nutrition segment and agricultural supply chain, is building a premix and animal nutrition plant in China. Separately, the group said it will be the first to use Rainforest Alliance Certified coconut oil to use in ice cream and confectionaries. Under the program, farmers in the Philippines and Indonesia will be trained in the sustainability standards which will also help them increase their income. A company official involved in the project said that “ethical brand positioning is an increasingly important driver.”

Cargill is expected to be one of the parties interested in buying Nestle’s Herta meat business, according to a source, which the former is looking to sell as part of its strategy to focus on healthy products. In the same vein, Nestle bought shares of Swiss-based start up Amazentis which is working on using a substance from pomegranates to create anti-ageing nutrients and dietary supplements.

In Hong Kong, Nestle has come under fire for continuing to use vanilla flavourings in baby milk powders even though it advertised as otherwise and had earlier committed to phasing out vanillin in baby products. A spokesperson for UNICEF argued that better regulations were needed, even though the WHO already bans marketing that suggests baby formula is as good as breast milk.   

Nestle announced it was buying a small stake in Europe’s largest veterinary services Independent Vetcare Group International to gather more information about pets and their owners’ needs. This comes at the same time as Nestle said it stopped procuring dairy from Martins Farms in Pennsylvania after an undercover investigation by Compassion Over Killing (COK) revealed severe animal abuse and cruelty. COK complained, however, that this was not enough to address the abuse issues.

Animal welfare activists are concerned the situation will only get worse. The US government announced it would cut the work force of federal hog plant inspectors by 40% and scrap time limits on the slaughter line. The plants themselves will be made responsible for identifying diseases and contamination, while beef plants are expected to soon follow suit. The USDA’s head vet criticised the plan, saying that the same safety de-regulations in the aircraft industry are now being blamed for the Boeing crashes.

Tesco supermarkets in the UK will follow in the footsteps of competitor Sainsbury’s and start selling vegan and vegetarian options in the meat aisle. Tesco said that changing consumer habits, including a 21% drop in UK families’ meat consumption, is forcing retailers to adapt. Another study, however, found that meat demand in the UK only dropped by a marginal 0.2% in 2018. Part of the problem is that consumers are used to cheap food, spending less than 10% of their household expenditure on food, down from 20% in the 1960s and compared to 60% in Nigeria. An organic beef farmer suggested taxing industrial meat to make it more expensive.

Another retailer adapting to consumer pressure is IKEA. The furniture king announced a plan to make all of its franchises self-sufficient in salad and herbs. It already started growing salad in a hydroponic soil-free container in Sweden, a system that uses 90% less water and half as much area as traditional farming.

Finally, a group of Georgians have responded to a NASA challenge and are working on finding ways to grow grapes – and therefore make wine – on Mars.

This summary was produced by ECRUU

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AgriCensus Report

China mulls ending US DDGS anti-dumping probe amid trade talks

China may be exploring ending the anti-dumping investigation into US DDGS imports after the ministry of commerce responded to a request from the US Grains Council to review the current situation, market sources have told Agricensus Tuesday.

President and CEO of the US Grains Council, Tom Sleight, confirmed that the council had raised the question of the review with the Chinese government.

Documents seen by Agricensus sent by the Chinese Alcoholic Drinks Association (CADA) to two separate companies, state that the ministry has received a request from the US Grains Council to re-evaluate China’s anti-dumping and anti-subsidy probes on US DDGS.

DDGS are an animal feed produced as a by-product to the production of alcohols like ethanol, typically using corn as a feedstock.

CADA is a central umbrella group that oversees China’s burgeoning ethanol production sector, with the letter sent by the association asking for the companies to submit details on their income over the last year, and their current DDGS production levels.

They are also asked to evaluate the potential impact on domestic companies and farmers’ incomes in the event that the probes are terminated.

All responses are required to be returned by April 10, according to the document, with CADA then submitting a summary to the ministry’s Trade Remedy and Investigation Bureau within a week.

The move sparked some excitement across Asia markets in early trading, although it stops short of greenlighting the restoration of US exports to the country as it appears to amount to another goodwill gesture rooted more in symbolism.

For the US, limits on DDGS exports into China predate the current trade war, with a series of measures enacted against US DDGS that has massively reduced the country’s export outlet.

In 2016, China was the biggest customer for US DDGS, soaking up 2.3 million mt over the year before a series of import duties slashed the competitiveness.

That slashed exports to 371,667 mt in 2017, with further measures paring that figure back to 206,657 mt in 2018, according to data from the US Grains Council.

As of January 2019, the latest month for which export data is available, China imported just 1,918 mt of US DDGS, down 91% on the same month of 2018.

“It is good news, but it will depend on how the trade talk goes,” one corn importer told Agricensus, although he expected that the review could be completed prior to the end of trade talks.

The impact on the feed market in China was not expected to be significant, according to market sources, as domestic production only accounts for one or two million mt, while soymeal has been relatively cheap this year and demand has been hit by African swine fever outbreaks.

“If the trade talks do go well in April, this should be approved,” a second China-based source said.

“We did ask the ministry of commerce to review the tariffs, as per their rules. This was not at the request of US Trade Representative,” Tom Sleight, president and CEO of the US Grains Council told Agricensus.

The Chinese Alcoholic Drinks Association declined to comment when contacted by Agricensus, while no comment had been received from the US Grains Council at time of publication.

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Women in Commodities

The programme for the FT Commodities Summit in Lausanne this year included a breakfast panel on Women in Commodities. Just holding the panel proved rather controversial; some conference attendees argued that the FT should have made more of an effort to include women on all the panels, and not have a separate one for them.

The summit organizers told me that they had tried hard to do just that, but were sadly unable to find industry leaders who were female. Instead, panel after panel at the conference consisted of old white men in blue suits, white shirts and the, apparently obligatory, Hermes tie. (I mean no disrespect; I am white and just as old, and was for the occasion dressed in exactly the same way!) The failure to find more women wasn’t the FT’s fault; it is just that the top echelons of the industry are currently almost 100 percent male.

Another criticism that I heard voiced at the event was that the women’s panel was 100 percent female. Indeed one of the panel participants told me afterwards that she had been surprised that, when she had looked out over the audience, she had seen that it was almost entirely male. She said that it had taken her a while to realize that that was because many of the women at the event were at that moment on the stage!

She also expressed her disappointment that the panel was entirely female. “It is no good just us women talking together,” she told me afterwards. “What we need is for a change of attitude among the men in the industry…for men to realize their unconscious biases, and accept the contribution that women can make to the sector.”

The panel, sponsored by the metals-trading Gerald Group, got off to an awkward start. In opening remarks, the company’s (female) COO and Board Member made a brave effort to convince the audience that Gerard actively sought out and promoted women. No sooner had she sat down than the FT journalist reminded her that Gerard had been criticised last year for holding their annual Metals Week party at the Playboy Club, complete with Playmates in low-cut, black satin leotards and fluffy tails. All the COO could do to justify that decision was to tell the journalist that it hadn’t bothered her and, in any case, it was “a convenient location.”

This type of thing highlights the sector’s (sometimes justified) sexist and macho image. Quite simply, there are few women currently in commodities because few women wanted to be in commodities. The sector’s image often puts women off from wanting to join in the first place. Much therefore needs to be done first to improve behaviour, and then second, to get the message across that commodity trading is no longer the macho sexist world that it once was. I hope this website is doing just a little bit to help in that cause.

There was some debate on the panel as to whether companies should positively discriminate in favour of women; some thought they should, others not. There are good arguments on both sides, but surely it is in the interest of every company to have more women on board. As every recruiter knows, hiring the right person is not just, or even necessarily, a question of academic qualifications and experience. When you recruit someone you are looking for the best person to fit in with, or lead, a team. And if your team is predominately male, then the best person may well be female.

There was also some discussion over eliminating unconscious bias among recruiters. A panellist from the mining sector explained how her company trains managers to be aware of their unconscious biases regarding gender, race and religion.

However, one panellist made the moot point that unconscious biases exist not just in our sector, but also across the board. She gave the example of journalists who always ask senior female executives about their children, and how they manage their work life balance. They never pose that question to a senior male executive. (Funnily enough, I had asked Chris Mahoney from Glencore that very question the previous day! I will be posting his interview next week!)

The panellist from the mining sector did make another key point: the mining industry is changing. She highlighted that one of her company’s mines in South Australia is now managed from Perth, making it easier to attract women. In any case, she added, the mining sector is replacing muscles with machines, making it easier for women to be competitive within the sector.

But it is not just mining that is changing. Trading is also changing with more money now earned from supply chain management, logistics, and innovation than from outright trading. This change will, I believe, inevitably lead to more women seeking to join the sector.

But even when more women are attracted to sector, women need to do more to help themselves to advance within an extremely competitive environment. One panellist told me afterwards that women tend to believe that all they need to do to advance in their careers is to work hard and do a good job. After all, their hard work at school was rewarded by good grades in the final exams. Unfortunately, this is not enough in the world of business. As Patricia Manso pointed out recently, hard networking and self-promotion are essential in any career.

So in conclusion, the commodity trading industry is changing and in so doing so will naturally attract more women. Even so, the sector must continue to improve both its behaviour and its image. It also has to mentor male managers to recognise their unconscious biases. And once they are in the sector, women need to do more to get their contribution noticed.

Unfortunately, it may take a generation for there to be an equal number of men and women on the stage at a future FT Commodities Summit. I may not be around to see it, but it will happen.  

Commodity Conversations Weekly Press Summary

Kellogg announced that it has sold its biscuits, snacks and ice-cream businesses to Ferrero for about USD 1.3 billion as it seeks to focus on its core cereal brands. Nestle had also sold its US confectionery business to Ferrero in 2017, as many firms struggle with the fast-changing demand in the packaged food sector. In contrast, Ferrero’s snack division is reporting solid growth and the family-owned business has made four purchases in the US alone in the past two years.

Ferrero was rumored to be one of the firms interested in buying Australia’s Arnott’s biscuit brand and Denmark’s Kelsen Group from Campbell Soup but sources are saying that Mondelez is now the sole bidder. The deal could be worth up to USD 2.5 billion and would add to Mondelez’ growing biscuit portfolio as the firm has been purchasing fast-growing snack brands around the world.

Consolidation is also expected to happen in the agricultural trading world, although nothing has been announced so far. The head of Glencore Agri said last week that the sector needed to consolidate because it was facing a fragmented overcapacity. At the same event, the CEO of Louis Dreyfus said the firm would look to purchase regional partners and set up joint ventures in Asia.

Meanwhile, a Commodity Futures Trading Commission (CFTC) study looking at end-of-day prices between 2013 and 2018 found that the increase in algorithmic trading had not caused an increase in volatility, confirming the group’s decision to shelf a plan to regulate automated trading. The CME president said that algorithmic trading was “a natural evolution” which made the market more efficient.

In an attempt to refinance part of its existing debt, Olam announced that it has secured a three-year credit facility of USD 350 million, which will be linked to the firms “digital maturity score” in what is being called the world’s first “digital loan”. The process is being handled by the Boston Consulting Group which will assess the score based Olam’s digital growth.

Cargill reported USD 566 million in net earnings for the past quarter, up 14% on year as spending cuts helped offset lower revenues as a result of the ongoing US-China trade war as well as the swine fever in China. The CEO said the firm was benefiting from a push to grow in the protein business which will help make it less reliant on its trading business.

The plant-based protein segment saw some big announcements this week as Burger King announced that it will start selling Whoppers with a meatless burger made by Impossible Foods in the US. Just a day later, Nestle announced that it will start selling its plant-based burger in Europe this month, called the Incredible burger. It will launch a slightly different version, called the Awesome Burger, in the US before the end of the year. Big firms are racing to reach the market first, and get FDA approval. Beyond Meat, supported by Bill Gates, is already selling in the US, while Unilever recently purchased the Vegetarian Butcher.

Plant-based meat alternatives are seeing a rise in popularity as they are believed to have a much smaller carbon footprint, a theory this recent study confirms. The Union of Concerned Scientists found that US families were able to reduce their greenhouse emissions without affecting their nutritional intake when switching to plant-alternatives. On the other hand, they noted that red meat might still be very popular among low-income families because it remains the cheapest source of protein. The study supports the fact that individuals can make a difference, which goes against the argument that the whole food system needs to be completely overhauled for changes to be felt.

But the most surprising scientific discovery announced this week, if not ever, is that cheese will taste better if it has been aged while hip-hop music was playing in the background. Experts found that the cheese texture evolved differently when it was contained in a box with speakers. They all agreed that hip-hop cheese tasted better than rock n roll and jazz cheese.

This summary was produced by ECRUU

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AgriCensus Report

Brazil first quarter soybean exports surge 30%

Brazil exported 17.2 million mt of soybeans over the January-March period, an increase on the 13.2 million mt exported over the same period last year because of an earlier harvest this year.

The most apparent gains were made in February when exports more than doubled year-on-year to 6.1 million mt.

Brazil exported 8.96 million mt of soybeans during March, up almost 2% from the same month last year, government data shows.

Volumes in March are typically higher than the first two months of the year as the harvest picks-up pace hitting a peak in April and May.

The year-on-year increase in March was due to an earlier harvest alongside heavy rainfall in some states that affected the pace of progress for most of the month. 

But analysts have said dryer weather toward the end of the month prevented a decline in production and continuing dry weather could result in better yields in April as the southernmost states increase planting, putting pressure on farmers to sell more beans. 

Official estimates suggest Brazil will export 70 million mt of soybeans this year, down sharply from the 84 million mt exported last year.

For corn, exports over the first quarter totalled close to 6.9 million mt, up 41% on the first quarter of last year when exports totalled 4.9 million mt. 

Exported volumes over March totalled 891,900 mt, up 47% on March 2018’s volume of 605,300 mt volume but down on February and January’s totals of 1.75 million mt and 4.22 millon mt respectively.

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The FT Commodities Summit

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.

Commodity Conversations Weekly Press Summary

Louis Dreyfus reported a net profit of USD 355 million in 2018, up 12% on year, thanks in large part to the US-China trade war which boosted demand for Brazilian soybean. Analysts suggested that the group is recovering, especially after the majority shareholder managed to buy out other family members. She earlier said the company was looking into “strategic partnerships” but the CEO dismissed any major buyouts or tie-ups. He argued that the main trading houses – the ABCDs – all had very different businesses now which would make any synergy unlikely. On the other hand, he expects that acquisitions or joint ventures at regional levels will continue to make a lot of sense.

ADM created a new board committee on sustainability and corporate responsibility. The CEO explained the board would help ensure that sustainability remained at the core of the group’s strategy. Separately, the group said the floods in the US Midwest were likely to reduce Q1 operating profits in its Origination and Carbohydrate Solutions units by USD 50-60 million, due to disruptions in ethanol and corn processing. Also in the US, ADM started producing organic wheat flour to meet the growing demand for organic packaged foods.

After a successful pilot project in China, Cargill and Heifer International announced the launch of the Hatching Hope Global Initiative which aims to help smallholder farmers improve their economic situation while helping feed the world by promoting the production of poultry. The CEO of Heifer argued that chicken and eggs provided valuable nutrients and were more affordable than other meat proteins thanks to their fast-growing cycle.

Earlier this month, the Commodity Futures Trading Commission (CFTC) asked market participants to come forward if they have been involved in or witnessed acts of briberies in other countries. The CFTC said it will be working with the US Justice Department. The focus at the moment seems to be on the oil and gas sectors, with several investigations already underway, but bankers suggest this could force trade houses to re-evaluate the role of agents across commodities, traditionally used to create access and help them get beneficial deals.

Greenpeace activists are urging Nestle to step up and reduce its use of single-use plastic, said to be used for 98% of its product offering. Nestle has admitted they needed to do something, the NGO said, arguing, however, that they were not moving fast enough. In the US, Nestle Waters North America announced the acquisition of beverage-delivery service Diamond Springs. Nestle is also building an R&D centre in China, its second biggest market, so that it can develop and commercialise new products faster. The CEO said that China was one of the “fastest-changing food and beverage markets in the world.”

Another company banking on China is Starbucks, where the coffee group opens a new store every 15 hours. The CEO explained that the tie-up with the Alibaba delivery platform has been key for the group’s growth, adding that it had also partnered with Uber in the US to that same end. The group is also investing USD 100 million in a new food start-up venture fund, as well introducing greener cups and developing disease-resistant coffee trees.

The US Environment Protection Agency said last week that it was looking at overruling the power of states to curb the use of pesticides that have been approved at the federal level. The agency is being sued by pesticide companies that argue their products fulfil federal requirements and therefore should not be limited anywhere in the country. The American Association of Pesticide Control Officials, however, said it intended to fight any attempt by the EPA to undermine “states’ right to protect their environment.”

This comes at the time a new study by EWG found that 70% of fruits, nuts and vegetables in the US have traces of pesticides, with strawberries having the highest. Even worse, 90% of people have traces of pesticides in their bodies. On the other hand, the UN Food and Agriculture Organisation (FAO) forecast that yield losses of the major crop staples due to pests is expected to increase by 10-25% for each degree of global warming, in addition to the 20-40% of the world’s crops yields that are already lost to pests every year. The FAO explained that climate change was making it harder to fight pests whose location and behaviour was changing.

The chemical pesticides’ industry slowed by 6% last year to USD 64 billion, according to International Bio Intelligence (IBO). On the other hand, the world’s biological pest control market has grown by 17% in 2018 to reach USD 3.8 billion and is expected to reach USD 11 billion by 2025. Farmers told the IBO that, unlike chemical pesticides, the dosage requirements for biological pesticides actually dropped over time. Brazilian agribusiness group Agrosalgueiro said that this was revolutionising agriculture, especially as it could be used to fight diseases for which there existed no chemical pesticides.

This summary was produced by ECRUU

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AgriCensus Report

ADM Q1 profits set for $50-60m hit caused by floods, cold weather

Agribusiness major Archer Daniels Midland said Monday that flooding across the US that has destroyed grain and oilseed stocks and swept away silos will reduce its pre-tax operating profit by up to $60 million this quarter.

The company – the ‘A’ in the so-called ABCD quartet of companies that dominate agribusiness alongside Bunge, Cargill and Louis Dreyfus – said the bulk of the hit would be shared equally between its carbohydrate solutions and origination businesses, which include corn trading and ethanol production.

“Rail transportation has been disrupted throughout the region; our corn processing complex in Columbus, Nebraska, was idled due to flooding and currently is running at reduced rates; and unfavourable river conditions since December are severely limiting barge transportation movements and port activities,” ADM said in a statement.

The US Midwest has suffered a severe winter as record-breaking cold weather that has hit corn processing volumes due to a slowdown in rail and truck transportation.

And earlier this month, heavy rains have meant widespread flooding across major corn and soybean growing areas and shut 10-17% of ethanol production capacity, according to various estimates.

“Taken together, we expect these severe weather disruptions to have a negative pre-tax operating profit impact to ADM of $50 million to $60 million for the first quarter,” the company said.

Q1 operating profit for the carbohydrate solutions and origination business was $213 million and $45 million, respectively.

ADM is the first major agribusiness to outline the financial damage the floods will have.

Earlier on Monday, the USDA said it was assisting farmers in Iowa and other communities affected by the flooding.

The floods will likely hit corn plantings and boost soybean plantings, some analysts say.

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Out of the Shadows

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.