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.
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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.
