By: Dan Hueber –
You are probably as sick of reading it just as much as I am of writing it, but the grain and soy markets remain lifeless and continue to drag sideways in a very broad based congestion pattern. We had actually discussed this months ago and suggested that prices could remain flat until we reached the growing season but at this point, it feels more like years of nothingness instead of months. While there is certainly nothing that assures that markets will find something in the summer weather to restore a bit more upside excitement, but it is difficult to remember a year when there was not at least one weather scare.
A week or so ago I wrote about the disappointing quarterly earnings that had been posted by Bunge Limited and the comments by its CEO, Soren Schroder, that seemed to indicate that the company would be welcome to overtures of mergers or other alliances. Well, it did not take long as it was reported yesterday afternoon that Glencore had made an “informal approach.” Swiss-based Glencore was founded in 1974 by the now infamous and deceased Marc Rich and over the years has grown into one of the major commodity traders in the world, with sales in 2016 of $152.9 billion. Recognize that after the commodity bubble burst back in 2012, Glencore, along with every other commodity firm, was forced to work through varying degrees of restructuring but obviously believes the stage is set for growth and according to CEO Ivan Glasenberg, intends to accomplish at least a portion of this via acquisitions. It is interesting to note that one of their previous major ventures into the grain occurred in 2012 with the purchase of the Canadian company Viterra, and ultimately had to sell a portion of this company to two different Canadian Investment Funds. I suspect they learned a significant lesson from that endeavor and hopefully, for their sake, timing is a bit better this time around. Regardless, if some type of “deal” is made with Bunge, it would be Glencore’s first real physical move into the United States and would elevate (no pun intended) them to the ranks of the world’s largest grain houses.
While there is no denying that efficiencies of size are the name of the game and older firms can lose their “edge” as circumstances evolve, but it is somewhat bitter-sweet to see one more of the old-line grain companies, technically go by the wayside. Many of you know, I came of age, so to speak, in the grain business in the late 1970’s and at that time the dominant global grain companies were as follows according to size; Cargill, originally founded in 1865 and the only American company on the list, Continental Grain, founded in 1813, Louis Dreyfus, which was founded in 1851 and Bunge y Born, founded in 1818. Rounding out the top five was Andre’, which was founded in 1877 and then Toppfer. At that time, these five companies handled 96% of the wheat exported from the United States, 95% of the corn, 80% of the wheat from Argentina and 90% of the corn and wheat that moved out of Europe. Note that today, Cargill, LD and Bunge are the only firms that remain in name at least as the other have been absorbed into various other companies including ADM, which of course is now in the top four or ABCD as they are often referred.
Other than for nostalgic reasons, there is little to mourn about seeing some of these previous giants fall by the wayside as realistically, that is how the economic world works. Survival of the fittest so to speak and companies that make bad decisions probably should go by the wayside. I fear that was something that should have been allowed to happen in the financial world after the 2008 meltdown and the entire debate about “too big to fail.” Regardless, it would appear that we may have another new/old player in town and if that helps increase competition, it should be a good thing for the farm community.