1/12/2018 Bunge, Cargill, Dreyfus and ADM face new challenges

Cargill Inc
Bunge, Cargill, Dreyfus and ADM face new challenges

Gregory Meyer in New York

SEPTEMBER 18, 2013

The people in charge of feeding the world are changing. Last week Cargill named the ninth chief
executive in its 148-year history, a move that followed new CEO appointments at rivals Bunge and
Louis Dreyfus Commodities in June.

The leadership changes come as the “ABCD” companies that dominate global agricultural flows –
Bunge, Cargill and Dreyfus plus Archer Daniels Midland – face a new set of challenges.

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1/12/2018 Bunge, Cargill, Dreyfus and ADM face new challenges

The quartet are vital to the world food trade, using hard-to-duplicate networks of silos, ports, ships
and farmer relationships to buy in surplus and sell to customers ranging from food groups such as
Nestlé to Egypt’s state wheat buying board.

They are not the only companies in the sector – Glencore Xstrata, the world’s biggest commodities
trader, has expanded in agriculture – but they are the biggest.

The world’s food import bill will total $1.09tn this year, the UN Food and Agriculture Organisation
estimates. ABCD revenue was collectively $348.7bn in their most recently reported 12-month
periods. The sum includes businesses other than grain trading.

Trade is “increasingly playing an important role in helping countries to cover their needs”, says
Abdolreza Abbassian, senior FAO grains economist.

Mayhem reigned in agriculture markets between 2010-12. Corn and soyabean prices surged to
records last year as drought withered the US and Brazilian crops. In 2010, wheat prices spiked
after Moscow imposed a cereals export ban in a panic over a heatwave in Russian growing regions.

The volatility favoured the trading arms at the companies. Cargill reported record profit in the year
that included the export ban. But as a group, the ABCD delivered erratic results, with profit at
ADM, Bunge and Cargill all falling sharply in 2012.

Now, a different scenario awaits Cargill’s David MacLennan and the new chief executives. The
world is this year expected to produce record corn, wheat and soyabean crops. The prospect will
damp the price swings that traders thrive on, but may still reap a net benefit to the companies.

“At the end of the day, lower grain volumes are not as good for overall performance for these
companies as more grain volumes,” says Chris Johnson, credit analyst at Standard & Poor’s, which
last week raised its outlook on Cargill’s debt rating from negative to stable, citing rising profit.

Grain prices add to farmers’ clout

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1/12/2018 Bunge, Cargill, Dreyfus and ADM face new challenges

Argentina’s farmers are hoarding This is because the ABCD companies sunk billions
soyabeans. Months after harvest, into processing facilities in recent years. These assets
became costly, underused millstones when grain fell
sales have been slow in the
short. Now, the prospect of higher grain stocks will
world’s top exporter of the meal
put them to the test.
and vegetable oil crushed from
the oilseed. “In varying degrees, all four of them have tried to
become something more than trading companies,”
Negotiations between farmers
says Bob Kohlmeyer, president emeritus at
and merchants have long been a
consultant World Perspectives and a former Cargill
feature of agricultural markets.
executive.
But high grain prices have
strengthened growers’ Mr MacLennan, who is set to become CEO at
privately owned Cargill on December 1 after being
bargaining power, squeezing
promoted from president and chief operating officer,
trading house margins.
says the majority of the company’s investments are
continue reading now taking place outside the US. These include
processing businesses such as a $40m plant to turn
chickens into McNuggets for McDonald’s in Russia.

“We use the phraseology ‘diverse, balanced and resilient’,” Mr MacLennan says. “The fact is, there
may be struggles in one part of the world or one industry. But in other parts of the world, other
geographies and industries, we’re doing quite well.”

Soon after Soren Schroder stepped in as chief at Bunge at the beginning of June he said returns
“must improve” and announced a $200m cut in capital expenditure to $1bn.

Bunge this year idled a Kansas soyabean processing plant as US stocks of the oilseed dwindled too
low to keep running. But Mr Schroder sees the possibility of big surpluses and lower prices, which
he says will be “good for global consumption and customers”.

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1/12/2018 Bunge, Cargill, Dreyfus and ADM face new challenges

ADM, which is poised to spend A$3bn ($2.8bn) to purchase Australia’s GrainCorp, meanwhile
continues to be led by seven-year chief executive Patricia Woertz.

ADM owns an asset-heavy empire of biofuel refineries and mills, with $23.4bn in gross property,
plant and equipment on its balance sheet. It is also the most concentrated of the four in the US,
where drought decimated the 2012 corn crop. The assets have dragged on earnings, with ethanol
plants losing money until recently.

“We have all these assets that we’ve talked about for the year that are not being utilised,” Craig
Huss, chief risk officer, told analysts last month. Now, “we will be filling those assets”.

Ciro Echesortu was head trader and operating chief at privately owned Dreyfus before becoming
chief executive at the end of June. Dreyfus is in the middle of a transformation, tapping the public
capital markets for the first time in its more than 160-year history, to finance acquisitions and
investments.

Louis Dreyfus’ executives call the company “asset-medium”, with fixed assets of $3.4bn.

“They have much more of a trading focus,” says Philippe de Lapérouse, managing director at
consultancy HighQuest Partners. However, the company plans to invest $5bn over five years “to
master the entire distribution chain, from the farmer to refining as well as connection with final
consumers”, its annual report says.

Despite all the changes, the companies are not abandoning trading. World trade in grains and
oilseeds rose 48 per cent to 453m tonnes in the past decade and will expand further in the next 10
years, according to the US Department of Agriculture.

“Trading is still a very important competency at these companies, but it’s become a bolt-on activity
to the processing operations,” adds Gary Taylor, former president of Cargill Cotton, who now heads
an investment group.

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1/12/2018 Bunge, Cargill, Dreyfus and ADM face new challenges

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