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One of the great things about writing this blog is meeting interesting people and learning about different businesses. However, after more than forty years following the sector, I rarely encounter a company I have never heard of, especially one as big as Sovena. Shame on me!<\/p>\n
Sovena Group<\/a> is one of the largest Portuguese agribusiness holding companies, covering the entire value chain from the fields on the farm to the shelves in the supermarket with brands such as Oliveira da Serra, Andorinha, Fula and Olivari, amongst others. The origin of this group dates to 1871 when Alfredo da Silva founded Companhia Uni\u00e3o Fabril (CUF), and today, after many acquisitions, mergers, and divestitures, this family-run group is led by the fifth-generation descendant, Jorge de Mello.<\/p>\n The company has four interrelated business areas: olive oil, olives, vegetable oil, and biodiesel. It has also recently invested in healthy foods and snacks by acquiring Centazzi, owner of the brand Salutem. It has factories in Portugal, Spain, the USA, Colombia, and Angola and operates farms in Argentina, Morocco, Spain, and Portugal.<\/p>\n Oilseed crushing is still the company’s core business. Miguel oversees the division from the company\u2019s headquarters in Lisbon. He is responsible for the supply chain for the group\u2019s commodities division, from production up to the refined oils for everything that is not olive oil: sunflower, soy, rapeseed, avocado, and specialty oils.<\/p>\n He describes his role as \u2018trading around an asset\u2019.<\/p>\n \u201cWe are an industrial company with a trading arm to enhance profitability,\u201d he told me over a video call. \u201cWe look at the spreads between the different oils and sometimes arbitrage between them, but we don\u2019t take speculative positions on FOB Brazil or Argentina. If I cannot buy seeds in Spain or import them, I might buy them in France or Romania and exit those positions when I purchase the physicals to execute the cargoes to our plants.\u201d<\/p>\n \u201cSunflowers are our main commodity, but we don\u2019t have a futures market. The closest we have is the Six Ports (1) for sun oil and the FOB Dutch mill for the rape oil or the Matif for the rapeseed.<\/p>\n \u201cSo, your primary objective is not to make money trading,\u201d I suggested, \u201cbut to keep your factories supplied and running.\u201d<\/p>\n \u201cYes,\u201d he replied, \u201cbut not at any cost.<\/p>\n \u201cThere is no point running a plant at capacity if we cannot earn a margin that at least contributes to fixed costs. We look at the market every day and calculate our replacement costs. What is the oil worth? What are the seeds? What is our margin? Can we lock in that margin by selling the oil and the meals to the domestic or export markets?<\/p>\n \u201cImporting seeds doesn\u2019t make sense if we are not making $1 above our variable costs. Instead, we can import oil, refine it, and bottle it. I won\u2019t put seeds into the plant pipeline just because I have an asset to run.<\/p>\n \u201cWe are the brand leaders in Portugal, with around 45 per cent of the market, so we have a responsibility to meet our needs. We treat our private-label customers the same way. If we commit to delivering oil, we will do whatever it takes to ensure the customer has it.\u201d<\/p>\n Miguel began his career in 1996 with Continental Grain in Geneva, working on soybean execution. He had always wanted to be a trader, and Conti offered him a trainee trader position just before Cargill bought the company in 1999. Sadly, Cargill told Miguel he would have to stay in operations. He left to take a position in freight brokerage, hoping that some freight experience would help him reach his objective of becoming a trader.<\/p>\n \u201cWhen Bunge opened an office in Geneva three years later, they asked him to join them, along with many of his ex-colleagues from Continental. He started on veg oil execution but moved on to the Black Sea grain desk, originating wheat, corn, and barley from Russia, Ukraine, Romania, and Bulgaria.<\/p>\n As mentioned above, Bunge has a toll crush agreement with Sovena in Lisbon. In 2007, Sovena sought someone to handle their soft seed crush operations in Lisbon. He took the position and stayed with the company for four years before rejoining Bunge to manage their crush and food operations in Italy. He then accepted the challenge of building and operating the EMEA high oleic sunflower value chain from Hungary. He then rejoined Sovena in 2017.<\/p>\n I asked Miguel how he managed during and after Russia\u2019s invasion of Ukraine.<\/p>\n \u201cMy hair turned white on 23rd February 2022,\u201d he answered. \u201cBefore the Russian invasion, Ukraine supplied 85 per cent of the sun oil imports into Europe.<\/p>\n \u201cWe got alternative supplies, mainly from Romania and Bulgaria. The resilience and the capacity of Ukrainian suppliers to work around different supply routes were unbelievable. Over the past three years, the country has done a fantastic job by exporting directly from their ports or via transhipment into the Danube into smaller ports or through Constanza or Poland.<\/p>\n \u201cUnfortunately, I don\u2019t know whether they can continue doing that. You\u2019ve seen the pushback from neighbouring countries, such as Poland, Romania, and Bulgaria, over Ukrainian imports. The farmers in these countries want to ban imports. It will become challenging if Ukraine cannot fully reopen its ports.<\/p>\n \u201cUkraine was once the leading producer of sunflower seeds. In the years leading up to the war, annual production increased from 10 to 17 million tonnes. It has since fallen back to 14.5 million. At the same time, Russia increased production to 18 million tonnes when it had always been a couple of million tonnes behind Ukraine.<\/p>\n \u201cWe also imported sunflower seeds from a project in Argentina where, with our local partners, we rent land and produce sunflowers. By leveraging our production and buying from third parties, we assembled around 50,000 tonnes of Argentinian seeds that we imported into Europe. That year, we did about 45 to 50 per cent of Argentinian seed exports.<\/p>\n \u201cToday, we manage about 12,000 hectares of land with our partner on sunflower production. We are not farmers and don\u2019t trade the other crops in the field rotation. Our Argentine partner manages around 100,000 hectares, and we put sunflowers in that rotation.<\/p>\n \u201cArgentina crushes most of its seed production, about 3.5 – 4 million tonnes, and exports the oil as crude or refined. We were interested in growing seeds near the port, south of Buenos Aires, and exporting them to supply our European plants.<\/p>\n \u201cAs I mentioned above, we only import seeds into our European crush plants if it makes economic sense. If it doesn\u2019t, we stop our plants and import oil. It is the same thing with Argentina but in reverse. If it makes sense to export seeds, we do, but if we get better prices, we sell them locally. We have done both over the past few years.<\/p>\n \u201cWe have tried to do some kind of toll crush agreement in Argentina to test if exporting the oil instead of the seeds would make sense. It\u2019s tricky as you\u2019re competing with the big grain groups, and they will not give you crush capacity for free. From an economic point of view, it\u2019s challenging to make sense of crushing at somebody else\u2019s plant.<\/p>\n \u201cOur plant in Lisbon is located at the port, and we have about 14 meters of draft. We can take Panamax or Capesize vessels, up to 100,000 tonnes. We have two crush plants on our Lisbon site, one dedicated to soybeans and the other to soft seeds. We also have another soft seed crush plant in Spain, near Cordoba and manage a 3rd<\/sup> one in north Spain via a JV with our partner ACOR.<\/p>\n \u201cSoybeans are not our core business; the driver is meal production, not oil. We are a vegetable oil company. We have a toll crush agreement with Bunge on beans, where we manage the soybean crush plant industrially and they manage the commercial side.<\/p>\n \u201cWe also partner with Bunge in rapeseed\/canola crush, handled via a joint-venture company called BioColza.<\/p>\n \u201cBunge markets our rapeseed meal into the Portuguese market as it is mid-protein and closer to the soybean meal market, and we manage the oil flow. On Sunflowers, we manage 100 per cent of the operation.<\/p>\n \u201cAbout 80 per cent of our meal production goes into the domestic market, but we also export to northern Europe. If I\u2019m crushing at 100 per cent sunflower seed capacity, I have to export meal as the domestic market is too small. It goes entirely to animal feed.\u201d<\/p>\n \u201cWhat\u2019s your biggest challenge?\u201d I asked Miguel. \u201cWhat keeps you awake at night?\u201d<\/p>\n \u201cFor the last couple of years, many things!\u201d he replied. We deal mainly with sunflower seeds, so what has happened in the Black Sea over the past two years has been very worrying.<\/p>\n \u201cLooking forward, the US elections in November could dramatically affect US support for Ukraine. It could be a game changer for the sun oil market.<\/p>\n \u201cAnd in the long term, we are concerned about climate change\u2019s impact on agricultural production.\u201d<\/p>\n Sovena owns olive oil plantations and has about 7,000 hectares of olive groves between Portugal and Morocco \u2013 6,000 in Portugal and 1,000 in Morocco. Still, the quantity of olive oil they produce from their olive groves does not even cover 10 per cent of their needs. The company buys olive oil from third parties and co-ops around the globe to supply their needs in the US and Brazil. Sovena owns Brazil\u2019s leading brand and is the market leader in extra virgin olive oil.<\/p>\n Until a couple of years ago, global olive oil production was about 3 million tonnes, with half of that coming from Spain. For the last two years, Spain has only produced half of its potential.<\/p>\n \u201cIt has made it more challenging for us to originate,\u201d Miguel told me. \u201cIt has also increased our working capital needs. About three years ago, olive oil was worth around \u20ac3,000 per tonne. It has since tripled in price. Today, a truckload of extra virgin olive oil is worth about \u20ac250,000.<\/p>\n \u201cThe recent rains in Spain have been excellent, and we have replenished most of the water reservoirs. So, we should be able to return to a more usual olive oil scenario. Unfortunately, it\u2019s too early to be too confident because a late frost or too much heat during the summer could still impact production.<\/p>\n \u201cClimate change will result in more of these extreme weather events in the future,\u201d Miguel added. \u201cHowever, climate change should open opportunities for other regions to grow olives, not only concentrating on the Mediterranean. We see that, for example, in South America, Argentina, and Brazil.\u201d<\/p>\n \u00a9 Commodity Conversations \u00ae 2024<\/p>\n This is an\u00a0excerpt from my new book,\u00a0Commodity Professionals\u2014The People Behind the Trade, <\/strong><\/span>now available on Amazon<\/a>.<\/p>\n One of the great things about writing this blog is meeting interesting people and learning about different businesses. However, after more than forty years following the sector, I rarely encounter a company I have never heard of, especially one as big as Sovena. Shame on me! Sovena Group is one of the largest Portuguese agribusiness … <\/p>\n\n
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