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Some pension fund managers are disappointed with the returns from commodities, especially given the equities market are going through a bull run. For one, Fidelity Investments Commodity Strategy Fund has lost 38% or USD 3.26 billion since 2012 from its investments in futures contracts as energy, gold and silver prices dropped and sugar and coffee supplies increased. The fund, however, said it was sticking with the commodity strategy as its managers take a long-term view. It has already reduced the share of commodities in its Freedom Funds to from USD 12 billion to USD 4 billion, or about 2% of net assets.

The US grains market has been through a tough year. Ethanol manufacturers and private grain handlers are now worried that the new tax law giving farmers a 20% deduction on grains sold to cooperatives will drive them out of the market. While Cargill and ADM said they were still evaluating the provision, many farmers are already exploring ways to sell grains kept at private elevators to cooperatives.

Meanwhile, cocoa traders are concerned about an impending crisis in Ivory Coast, where the Coffee and Cocoa Council (CCC) has reportedly resold some 100,000mt of cocoa export contracts that were going to be defaulted on. Because of falling prices, exporters have been struggling to get the financing to buy the beans for their export commitments. Last year, already, the CCC lost some USD 355 million because it had to resell cocoa at a loss.

On the other hand, the NAFTA trade negotiations could get a big boost from recent figures which showed total trade between the US and Mexico in Jan-Nov 2017 gained 6.4% and reached USD 512.2 billion. Mexico reported a surplus of USD 65.68 billion, the highest since 2007. Analysts said this was a sign that the private sector of both nations would be able to convince the White House to continue the NAFTA program, although the growing surplus in favour of Mexico could add to tensions.

Talking of revisiting trade arrangements, the UK government is likely to pay EU-like farm subsidies for five years up to 2024 during the transition period when Britain exits the bloc in March 2019. British farmers get about USD 4.06 billion in subsidies as a part of EU’s Common Agricultural Policy, and the government aims to match this amount until it comes up with a new system.

Sources say Italy-based Ferrero could be buying Nestle’s US chocolate business as early as this week, paying as much as USD 2.8 billion and outbidding rival Hershey. This would follow another acquisition – that of Ferrara Candy back in December – as Ferrero tries to gain more US market share while Nestle focuses on healthier segments. Another European group to eye the US market is French dairy company Lactalis which will buy US-based Siggi’s. Siggi’s manufactures Icelandic style yogurts, reportedly based on a recipe prepared by the founder’s mother.

Still in the US, Hershey and Cargill have quit the Grocery Manufacturers Association, joining Campbell Soup, Dean Foods, Mars, Nestle, Tyson Foods and Unilever who previously left the association. While none of the companies gave a clear cause for leaving, many of them wanted the lobby group to change its stance on a host of issues including GMO labelling.

In an interesting twist, Japan’s government has designated Coca-Cola Plus as a “Foods for Specified Health Uses.” Also known as the forshu stamp, consumers widely view the endorsement as a sign the product is healthy. The drink, recognisable by its while label, contains indigestible dextrin which acts as a laxative. Two other sodas, Kirin Mets Cola and Pepsi Special, also received the government’s health seal of approval.

China seems to be tightening its grip on food safety. The government has removed from stores 1,400 baby formula products which were not registered with the Food and Drug Administration. The move will open up the country’s USD 20 billion baby formula market to other players, a market which is expected to grow 5% annually as a result of the easing of the one-child policy.

Scientists may have found a cause behind the declining honey bee population. A recent study showed that honey bees are attracted to some types of fungicides, such as the herbicide glyphosate. The University of Illinois explained that this was likely leading to increasing levels of fungicide contamination in hives.

The UK’s Prime Minister has committed to an end to plastic waste by 2025. The plan would extend the charge on plastic bags to more shops as well as tax things like takeaway wrappers. A latte levy on disposable coffee cups and a ban from 2023 if these cups are not recycled were also proposed to try to reduce the 2.5 billion disposable coffee cups used annually. However, several environmental groups said the plan would need to be legally enforceable to have any impact.  

Olam‘s CEO has taken charge as the chairman of the World Business Council for Sustainable Development. The co-founder of Olam International is the first person from the agri sector as well as the first Asia-based and Asian CEO to head the council.

Finally, the CME Group, which owns CBOT and Chicago Mercantile Exchange, has allowed block trading in all its agricultural markets as of January 8. These privately negotiated deals are permitted in its other markets such as Black Sea wheat and Eurodollars. Futures International explained the company was trying to create more liquidity in deferred futures spreads and create some transparency. However, the National Grain and Feed Association complained block trading will decrease transparency by taking business out of the public marketplace.

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Cargill reported a 6% drop in their net Sep-Nov quarterly earnings to USD 924 million, mainly due to falling revenues in their grains and oilseeds trading unit. The company said that high grains inventories in the US and the rest of the world resulted in lower volatility and therefore fewer trading opportunities. The group – which spent over USD 1 billion this quarter in acquisitions, joint ventures and infrastructure investments – will continue to expand towards “more sophisticated feed additives” and to shift towards “sustainable, natural feed ingredients that improve animal health and embrace changing consumer values.”

Cargill also announced the acquisition of pet foods Pro-Pet, a move which will make the company the only national marketer of animal feed and pet foods in the US. In India, meanwhile, Cargill will spend USD 236 million on its expansion over the next few years, including cocoa products and animal feed nutrition. The company is also investing USD 15.75 million in building storage capacity.

The US Department of Agriculture forecasts that people in the US will eat an average 45.72kg of red meat and chicken in 2018, more than the 2004 record. This is the equivalent of 283g/day, against the government prescribed 184g/day. Consumption declined by 9% from 2007 to 2014 because of higher commodity prices and a shift away from meat diet because of health, climate and animal welfare related concerns.

Brazil’s Port of Sao Paulo handled a record 129 million mt of cargo in 2017, beating the previous record set in 2015 by 8% and an increase of 14% on 2016. Out of the total, 49.5% was agribusiness goods, up from 47.8% in 2016. Sugar was the most exported crop at 21.1 million mt, followed by soybean with 16.5 million mt, out of which 85% went to China. The port expects to handle an even greater tonnage next year, with a 3.2% increase forecast.

Brazilian exports to China could increase as the latter is now requesting that soybean imported from the US contain 1% or less foreign materials, which renders half of the USD 14 billion annual exports ineligible and requires additional processing at Chinese ports, increasing costs for US farmers and traders.

China invested 20 billion in the ship financing sector in 2017, a 33% increase year on year as European banks pulled back due to the long down-cycle. As a result, three Chinese groups now own more than 800 ships with a value exceeding USD 23.6 billion.

Competition from green plastic manufacturers is increasingly challenging a market dominated by petrochemicals companies. Coca-Cola, for instance, sold over 50 billion plant bottles that contain 30% bioplastic. Among the companies investing in bioplastic, BASF is setting up a 50,000mt cornstarch bottle plant in Belgium, Stora Enso is testing 50% wood fibre-based plastic, and Lego put USD 160 million to research sustainable materials for its toys.

Food waste continues to be a major concern in India. As of the middle of last year, the Ministry of Food was involved in 228 projects in building pre­-cooling and chilled storage from the farm to the consumer in a bid to reduce some of the USD 14 billion food wasted every year. However, experts say progress is too slow, with fingers pointing to the inefficiencies of the public distribution system. Meanwhile, the FAO estimates that 15% of the country is undernourished.  

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Louis Dreyfus is selling its subsidiary LDC Metals to China’s NCCL Natural Resources Investment Fund which is owned by major copper and cobalt producers New China Capital Legend, AXAM Asset Management and China Molybdenum. Dreyfus intends to reinvest the sale proceeds in its grains and oilseeds business.

Meanwhile, Sierentz Global Merchants – which is owned by Louis Dreyfus family members, but not related to the company – registered a subsidiary, Sierentz Global Merchants Vostok, in Moscow on November 1. It will be headed by Louis Dreyfus’ ex-commercial director in Russia.

ED&F Man reported a pretax loss of USD 144.6 million for the year ending September 30, down from a pretax profit of USD 101.9 million a year earlier, partly due to the struggling sugar and grains sectors and a fraud with warehouse receipt transactions. Performance in the coffee and liquid segments, however, was good and the firm said its resources would ensure its operational existence in the foreseeable future.

Cargill has launched a website called FedByTrade where its 155,000 employees, communities and customers share stories of how they benefited from free trade agreements. The new initiative will help the company send a message to the White House which is looking to move away from multi-country trade deals like the 11-nation Trans-Pacific Partnership and NAFTA.

Cargill also announced it is tying up with Techstars and Ecolab to set up a startup accelerator in Minneapolis which would allow the company to invest in future farm technology to address challenges faced by the food system. The first batch of 10 startups will arrive in the summer of 2018 for a 13-week programme which will focus on developing technology to shape the food industry.

Talking of tech, Unilever has started a pilot project to develop a sustainable tea supply chain using blockchain technology. The one-year-long project will track Malawi farmers supplying sustainably-sourced tea.

According to Olam, increasing cocoa consumption in emerging markets has reduced the global surplus to just around 50,000mt this year from the record 371,000mt in 2016. The demand is higher in Asia, particularly in the Philippines, India, Indonesia and China and is expected to increase by 5% globally. However, global cocoa processing is predicted to grow by only 3% compared to 5% in 2016/17. Olam is raising its capacity to make cocoa powder in Asia and considering a new mill in the US.

Nestle’s Purina PetCare group is reducing headcount by 300 across US facilities as it focuses on cost competitiveness and right-sizing the organisation. The aim is to increase investment in high growth areas and grow market share. Meanwhile, the Water Resources Control Board of California has asked Nestle to limit the withdrawal of water in San Bernardino National Forest unless it proves it has legal rights to extract it. A board engineer said a 20-month probe found that the company does not seem to have the valid rights. The board has set the limit at around 8.5 million gal, which is about 25% of what the company extracted in 2016.

In the UK, Tesco plans to stop wasting human edible food by March 2018. The CEO said the group is using an app, FoodCloud, to inform the local charities to come and pick up the surplus food at each of its stores every day. Tesco has signed the voluntary Courtauld Commitment 2025 to reduce food waste by 20% in 10 years.

On the other hand, fossil fuels companies have invested USD 180 billion in 318 projects since 2010 in the plastics industry by establishing cracking facilities across the US – a move which will increase plastic production by over 40% in the next decade. The American Chemistry Council explained that the drastic increase in plastics facilities is due to the shale gas boom, which brought down prices of the natural gas liquids used in making plastics by nearly two-thirds.

The war against sugar continues in the US, with Seattle implementing a USD 0.0175/ounce tax on sugar sweetened beverages as of January 1, 2018. Meanwhile, there is increasing demand for by-products from cane. For instance, Telstar 18, the official ball of the 2018 Football World Cup, will use Keltan Eco rubber which is the first biologically based ethylene extracted from sugarcane. Adidas said that Keltan Eco rubber has a much lower carbon footprint compared to fossil fuel-based polymers.

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Cargill is looking at investing USD 212 million to build a new river port terminal in Brazil’s Para state which could handle 6 million mt of grains via barges from Mato Grosso. If the project goes ahead, the port could be operational by 2022-25.

The company continues to bank on growing meat demand in Asia and has opened its first animal nutrition premix plant in the Philippines at a cost of USD 12 million. Cargill is also investing USD 15 million to start manufacturing piglet feed products at its premix and nutrition plant in Tianjin, China. The new production line will use a traceable barcode management system as part of the group’s wider sustainability and traceability goals.  

Cargill has said it would stop buying palm oil from Guatemalan producer Reforestadora de Palmas del Peten (Repsa) until it meets their sustainable oil policy. Cargill explained it had asked Repsa to make some changes following complaints by environmental NGOs in the middle of 2017, but that these demands had yet to be met. The International Forests Program for Friends of the Earth said the move will send a strong message to the industry, and that other companies which also buy from Repsa, such as Wilmar, could follow suit.

This is not all that surprising given that in the US, a survey by Nielsen showed that 45% of consumers are more inclined towards buying a product from a brand committed to being sustainable and environmentally friendly. Not only that, but 66% of consumers will pay a premium for what they consider to be a sustainable brand, a share of the population which will continue to increase given that 73% of the millennial generation is willing to pay extra.

Similarly, the US meat industry is witnessing a structural shift, with the sales of fresh grass-fed beef rising to USD 272 million in 2016, up from USD 17 million in 2012, while the sales of ‘traditional’ beef are falling. This is because more and more consumers prefer healthier, environment-friendly and grass-fed meat.

Louis Dreyfus – which ships some 81 million mt of agriculture products annually – has joined the Sustainable Shipping Initiative (SSI). Dreyfus’ head of freight said the move was part of the group’s intention to have more sustainable shipping operations.

​T​he newly launched CME Black Sea wheat cash-settled swap contract traded for the first time last week.  One of the counter-parties, Swiss-based trading company, Solaris Commodities S.A., welcomed the contract saying it was the best derivative option available for participants involved in the Black Sea market as the correlation is better than futures contracts such as Matif or CBOT

Thai sugar producer Mitr Phol will shell out USD 100 million to buy a 50% stake in Olam’s Indonesia-based Far East Agri. The aim is to set up a sugar mill in East Java by 2020 which will process 1.2 million mt sugarcane in a bid to help reduce the domestic supply deficit.

Still in the sugar market, Brazil’s Centre South could lose between 9 and 20 million mt of sugarcane processing capacity in 2018/19 due to producers idling capacity. Producers are struggling financially, and unable to invest in fields and mill modernisation, making it necessary to reduce operating costs and run more efficiently.

Unilever has agreed to sell its margarine business – which includes brands like Rama, Flora and Blue Band – to the US-based private equity firm KKR for EUR 6.8 billion (USD 8 billion). The deal is expected to be completed by mid-2018 and is a part of efforts to restructure the business.

In the US, Dunn’s River Brands, a drinks portfolio management firm of Texas-based PE Fireman Capital Partners, will buy for an undisclosed amount two of Nestle Waters’ ready-to-drink iced tea brands. One of the founders of Dunn’s River Brands said the company will add more brands to its portfolio in next 90-120 days.

Food companies are increasingly using Blockchain technology to identify fake ingredients and track the cause of contamination in recalled products. The technology will also reduce fraud and eventually lower the costs related to documentation, which currently are estimated at 7% of the USD 16 trillion worth of raw materials traded every year.

Finally, if you are planning to celebrate the New Year with seafood, recent research from Norway found that mussels in the Arctic waters contained even more microplastics that mussels in coastal waters. All the mussels tested had microplastics, a strong indicator of the worsening pollution levels in the sea where an estimated 8 million mt of plastic ends up every year. However, scientists say that our exposure to microplastics is probably higher when wearing a fleece jacket or playing with a toy, than by eating seafood.

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Louis Dreyfus is selling Macrofertil, its fertiliser business in Australia, to Agrium’s Australian unit, Landmark Operations.  Louis Dreyfus sold its African fertiliser unit earlier this year, but still owns a fertiliser business in South America.

ADM is selling  its Bolivian oilseeds business, which includes a processing facility, nine grain silos and distribution operations, to Inversiones Piuranas. Meanwhile, the company has tied up with Apollo Global Management to submit a new bid for Unilever’s spreads business valued at USD 7 billion.

ED&F Man said it will restructure its sugar business because of low prices. It also plans to divest, partially or completely, its global physical grains trading business.

Armajaro Asset Management, well known for cocoa and coffee trading, is closing its flagship hedge fund CC+. The company says that algorithmic trading is rendering physical commodity trading uncompetitive. The company intends to begin a new fund in Apr-Jun 2018, although no details have been provided. The company’s assets under management fell from USD 2 billion in 2011 to USD 254 million in 2016.

In Brazil, Copersucar will partner with BP‘s Brazilian unit to form a 50:50 logistics joint venture which will manage Copersucar’s ethanol storage facility in Paulinia.

Shipping costs for dry-bulk commodities have escalated sharply since July, pushing the Baltic Dry Index to a near four-year high on the back of China’s coal and iron ore demand. Agricultural trade is taking a hit as freight costs, which on an average make 11% of total costs, are at a 7-year high.

To feed the country’s fast growing demand for premium beer, China has doubled imports of Canadian barley in the face of disappointing crops in the EU and Australia, from where it usually sources most of its needs.

US soybean crushing capacity is expected to increase by 5% in 2019 from 1.9 billion bushels currently, the fastest expansion rate since 1997/98 as growing feed demand pushed margins up to an 18-month high. The increase in processing capacity is expected to boost demand for soybeans, which the USDA forecast will be planted over 91 million acres next year, a record high. Even so, this may not be enough. The National Oilseed Processing Association has forecast that global production must increase by 20% to fill the growth in feed demand over the next 10 years.

Countries are looking at imposing a meat tax to meet the targets of the Paris Climate Change Agreement. The director of Farm Animal Investment Risk and Return (FAIRR) said meat taxes are already being discussed in Denmark, Sweden and Germany. An Oxford University study in November mooted a 40% tax on meat and a 20% tax on milk to compensate for the damage to the environment and health.

In the US, Monsanto has announced a cash-back incentive for farmers who use its dicamba-based XtendiMax herbicide on Xtend GM soybeans in order to offset costly government legislations. Several US states have banned dicamba-based herbicides, or are asking farmers to undergo special training. Seperately, a source said that Bayer’s Monsanto takeover bid is likely to see more hurdles from the EU antitrust regulators who are concerned that the purchase would hurt competition.

Wildfires have destroyed or damaged a large part of California’s avocado and lemon crops in the last few weeks. However, consumers should not be affected as they can still source from Mexico and South America. Even so, the future may be tough for farmers in California; the governor has said that wildfires, because of climate change, are ‘the new normal’.

The World Resources Institute and Cargill have mapped 2.3 million ha of cocoa plantations in Brazil, Cameroon, Cote d’Ivoire, Ghana and Indonesia to monitor deforestation, and devise long-term solutions to the problem. 

China will no longer allow the import of plastic waste as of January 2018, a significant move given that the country took in 51% of the world’s plastic scrap imports in 2016. This is bad news because countries that had been using China’s recycling industry will have nowhere to send their waste, potentially increasing the threat of pollution. The good news, however, is that efforts are ongoing to develop edible packaging in a bid to get rid of plastic. Check it out here.

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Cargill could partner with ADM, Bunge and Amaggi to bid for the Brazil’s Ferrogrão railway concession, a 1,000km railway linking grain regions to the port of Miritituba. A Cargill official explained that it would reduce logistics costs by avoiding the poor quality roads, as well as providing an alternative port to Santos and Paranaguá in the south. A Chinese state-owned group is also planning to bid.

Almost all of the 239 locks in the US waterways systems are past their “Use By” dates. The American Society of Civil Engineers has said that this is resulting in delays for almost half of the ships that use the waterways. The Ohio River has seen its worse jams ever this year with at one stage over 50 miles of ships at a standstill, many of which were carrying grains. The resulting extra costs meant that the US has struggled to compete with South American grain, causing losses all across the supply chain. Some of the locks are slowly being replaced. (Original source: Reuters)

Olam is working on building an online marketplace to allow small-scale farmers to sell their products directly, as well as to source farm inputs and find financing. The company’s CEO  explained that this is part of “Olam Direct”, a program designed to leverage its network of small farmers (some 4.3 million of them) and offer them value-added services. The program also offers better  traceability to end buyers. The group already has over 100,000 farmers from 21 countries registered in its Olam Farmer Information System mobile app, which uses big data and artificial intelligence to help farmers improve efficiency, quality and traceability.

In the US, Cargill’s head of Corporate Affairs has called on farmers to take an active role in policy making, explaining that the US threat to withdraw from trade agreements such as the NAFTA could have a disastrous effect on the country’s farm economy. She said that trade fed the world, and drove productivity and economic growth.

Barter transactions supplied over half of farmers’ crop financing in Brazil’s Mato Grosso state this year, the first time in almost a decade that barter has such a key role. The research agency Imea explained that as a result of low margins and poor revenues, trading groups and agriculture product resellers have little choice but to exchange their crops for the necessary farm inputs.  (Original source: Reuters)

Nestle has announced that it has bought Canadian group Atrium, its fourth acquisition in the last few months, and another step in its strategy to become a “nutrition, health and wellness” company. Atrium makes vitamins and nutritional supplements with sales mostly in the US.  Some sources said that Nestle might also want to buy the German equivalent, Merck. (Original source: Reuters)

France has kept its place as the Most Food Sustainable Country in the Food Sustainability Index published by the Economist Intelligence Unit. The EIU estimates that France loses only 1.8% of its total food production each year thanks to its anti-waste policies. The UAE was at the bottom of the index with an estimated 1,000kg of food wasted per year person each year. The UN FAO estimates that one third of all global food produced each year is wasted.

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Anec, Brazil’s grain exporters association which includes ADM, Cargill, Louis Dreyfus among others, has warned that the sector could be seeing its worse performance in 10 years amid bumper crops and poor margins. A spokesman said that merchandising companies had to really look into their risk management practices, adding, “We have to rethink what we are doing.”

Cofco International Ltd (CIL) has announced plans to double direct grain purchases from farmers to 60 million mt by 2022 in its bid to rival the ABCDs of agricultural commodities. The CEO said that CIL would have a turnover of USD 37 billion this year as it is expected to handle 110 million mt grains, of which 80% will be sourced from global traders. The CEO added that plans to launch an IPO were still on.

Bunge has increased the number of executives eligible for cash compensation (if they lose their jobs without cause within two years of a takeover) to include five top executives, from just the CEO previously. A finance expert explained that the move would discourage these executives from trying to stop any acquisition process.

In the world of vegetable oil, Louis Dreyfus is buying Golden Agri’s crushing and vegetable oil refining business in China. The move is part of the trade house’s strategy to focus on core activities such as grains and oilseeds amid declining margins.

Wilmar is collaborating with ING to convert some of its USD 150 million loan into a sustainability performance-linked loan, the first company in Asia to do so, and the first in the palm oil industry. The trade house will improve its environmental and social performance in exchange for a reduction in the interest rate. Sustainalytics will be measuring the progress.

Chinese group CCCC continues on its acquisition binge and is now looking at Brazil’s railway sector, having just bought Concremat Engenharia and the São Luís port project in Maranhão. The group, along with Japan’s Mitsubishi and Sumitomo are each reportedly in talks with Rumo about taking a stake in the 7,208km railway concession in the South Malte.

The commodity trading group Citadel has asked the Commodity Futures Trading Commission to look into the “other reportables” category on the Commitment of Traders (COT) reports. Citadel argues that the category lacks transparency yet represents a significant share of the market – for example 13.8% of the Open Interest in Chicago soft red winter wheat futures. Some say that the category includes prop trading firms and quantitative funds, among others.

US growers and processors of cranberries are hoping that the government will give them the green light to turn excess fruit into fertiliser for the first time ever. Interestingly, Thanksgiving dinner this year was probably the cheapest since 2013 given the global surplus of meat and grains, which are successfully keeping prices low. Meanwhile, a study based on computer simulation of national data forecast that 57% of children aged between 2-19 years in the US are likely to become obese by the age of 35.

Last week we talked about the increasing sea freight costs but have you ever wondered how many vessels there are at sea at any given point? Check out MarineTraffic’s screenshot to see for yourself. It’s impressive.

Finally, for our tech update, the cryptocurrency is making its way into commodity trading with Ukrainian shipping firm Varamar announcing it would now accept payments in Bitcoin. This is expected to be a game changer for countries affected by sanctions that can’t use US Dollars.

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