Farms are where the money is

Like farmers who need more and more land from which to draw their incomes, grain traders are also feeling the pinch of the currently low commodity prices.

There is less room in a low-priced bushel than a higher one from which to wiggle grain business profits as the major commodities remain under pressure from over-supply.

An additional element bringing pressure to the grain trade, besides low prices, is stagnant ones. The lack of volatility adds to the challenge of tight margins, meaning companies can’t squeeze profits out of inventory management against futures and other trading positions. Size of enterprise can aid with those troubles.

This week you will have been hearing about Bunge and Archer Daniels Midland considering forming a single entity, one about the size of Cargill.

And this is taking place only a year after industrial and transportation giant Glencore, which owns Viterra, was talking to Bunge about the potential for a deal.

In our Canadian world, Bunge is a partner in G3, and including its branded facilities, has about 18 elevators in this country and three in a partnership in nearby Montana. It also has crushing and refining in Manitoba and Saskatchewan.

ADM has about 40 locations in Canada, including canola crushing at Lloydminster and in Windsor and elevators at Watson, Sask. and Carberry, Man.

Among its mills is a Lethbridge facility. Then, of course, there are port facilities and proposed port facilities owned by each.

In North America, there are more than 100 elevators for Bunge and 500 for ADM.

The company has consolidated many businesses over its 116 years of existance. Bunge has about 200 years of corporate history behind it and is known to be an aggressive corporate dealmaker.

Bunge is the smallest of the big four trading houses, known in the grain business as the ABCDs, along with ADM, Cargill and Louis-Dreyfus. It’s small, of course, in a US$42 billion in annual revenue sort of way.

It is hard to squeeze more money from the global market. If there is going to be squeezing of money from a grain and oilseed dollar, I have a feeling I know whose purse is going to get pinched the most from further consolidation. That is trickle-down economics.

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Comments

  • richard

    You have a ” feeling” Michael? I think we both know whose nuts are gonna get squeezed…..but we really don’t wanna call the names of those who sponsor these pages as the perpetrators, do we. I wonder when the day comes that we can have an adult conversation about unmitigated laissez faire growth as THE uncontested model for global prosperity in agriculture. The grow more/get less, starving planet, cheap food paradigm has resulted in nothing more than top to bottom consolidation of capital, the gene pool, and human resources…. to what end? Environmental degradation, a hundred billion USD in taxpayer subsidies, fat Westerners, rampant hunger, health care out of control…….and now in a final death throe, the beast is about to consume its own tail…. An agriculture where the only profit derived is in treating disease, top to bottom, is a pretty sad indictment of the most noble of all professions……Are we living on the planet of the apes?

  • ed

    Summerfallow and set asides, reduced fertilizer rates, less deadly chemicals on crops will all reduce the total amount of grain gluts in the world today leading to vastly improved bottom lines for farmers and having nearly no impact to consumers. A loaf of bread having only 6 cents worth of wheat in it is not going up too much if a bushel of wheat doubles or triples in price at the farm gate. A can of beer with it’s 1 to 1.5 cents worth of malt barley in it, is not going to go up too much if the price of that commodity doubles or triples in price at the farm gate. The empty can is worth 7 to 10 times more than the barley that is in it when it is full. Oversupply is never a good thing and always leads the independant thinking, self employed, entrepreneur into the slave labour zone. That is net of land assets going up. If land always goes up, you can accept the low, breakeven or lost incomes. That did not carry on after a long standing thought that it would and had disastrous hardships and consequences, some may remember.

  • richard

    No, its trickle down willful ignorance….complicity…. Global subsidy agriculture, overproduction, environmental degradation, ritual herbicide, pesticide and animal abuse have all resulted in “normalizing” the cheap bad food paradigm…..to the point that human health and tax dollars can no longer disguise that there is no value left to be wrung out an ersatz value chain….. The merchants of grain consolidating is nothing less than the beast devouring its own tail……The farm is not where the money is…. its where the buck stops. Stop participating in the waste of fifty years of grow more get less mythology and the whole charade disintegrates….. Growers have the power to change the rules, or as described above….. the choice to participate in their own terminal pain.

  • richard

    Well stated mr. ed…..

  • Bruce

    Excellent post ed!

    • ed

      Thabk you!

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