Yesterday I drove down to Altona for the sod-turning for the expansion that will double the production of the Bunge crushing plant there. (I didn’t make it to the sod-turning. That’s a different story!)
All along the road I saw golden fields of canola, most of which will – if harvested in OK condition – end up at the plant. And I thought that must have been a nice sight for the CEOs of both the overall Bunge multinational and the CEO of Bunge North America as they drove down to the event. These fellows, who I interviewed Monday afternoon here in Winnipeg, came in for this official act of boosting capacity, and they did it on a gamble.
They gambled that prairie farmers and Manitoba farmers would find ways to get beyond acreage and rotation limitations somehow and seed the massive crop that Bunge would need for the expanded plant. The Altona expansion comes at the same time as two massive plants have been added in Yorkton and a bunch of other expansions and new plants are also coming along.
I asked them about how they had the courage to commit to dumping a huge amount of money into new crushing capacity when many knowledgeable people felt that there just wouldn’t be enough resources to produce the crops that all the new capacity everywhere would need.
What Soren Schroder, the Bunge North America CEO, told me was fascinating, because it showed the type of thinking that operates in the superstructure of the world’s biggest commodity and agriculture firms, and it’s quite different from the prosaic analysis that most of us utilize. Because it seems to be working out, this different way of looking at the canola situation seems brilliant. If it hadn’t, I’d be writing stories about a crisis in the crushing industry . . .
Schroder said he was convinced that there was room for a major expansion of canola production not primarily on agronomic grounds, but because of an overwhelmingly good combination of market demand and farmer profitability. There is huge demand for healthy oils like canola, especially now the oil often trades at parity or even a discount to less-healthy soybean oil. That demand for healthy oil will only grow. Alberto Weisser, the Bunge Limited chair and CEO, said the demand for all vegetable oil will grow steadily, and is one of the safest assumptions in world food demand projections.
That will cause vegetable oil prices to be high, compared to historical norms, and that will make growing the crop profitable and therefore farmers will want to grow it and do everything they can to grow it.
So the sense I got from the Bunge men was: if you build that positive economic equation, the crop will come. The agronomics will be worked out and aren’t the dominant factor.
In a way, it’s an act of faith, which they admitted they were at times anxious about. “It’s a leap,” Schroder acknowledged.
But as I drove down towards Altona, past field after field of canola, it seemed to be a leap-of-faith that was well-grounded. And it seemed to me a neat example of a different way to look at crop production and what really drives it. Pragmatic limiting factors can seem to disappear when everyone is making money.
Five years from now, when this new generation of plants and expansions is all working at full capacity and had a few crops to chew through we’ll find out if the big players like Bunge, Richardson International, Louis Dreyfus and ADM were right with their bets. But right now, with canola yield and acreage booming, their thinking appears to have been right.