Viterra is buying grains in the cash and futures markets because it sees the recent slide as unsustainable, chief executive Mayo Schmidt said Mar. 16
Grain and oilseed prices remain relatively high and have driven up the cost of food to record levels, but fell sharply recently, just as farmers in the Northern Hemisphere prepare for planting season.
As of Mar. 16 Chicago May wheat futures had dropped 18 per cent, while ICE canola futures had lost nine per cent since March 2 as first Middle East unrest and more recently the Japan earthquake rattled investors.
Schmidt told the Reuters Food and Agriculture Summit in Chicago that the lower prices are not sustainable given the shortage of key crops.
“As we get to these lower levels, we’re buyers,” he said. “We believe it’s not sustainable to have these lower prices and send the signals to the farmers to adjust their planting (for) crops that are already in tight supply.
“It’s a strong reaction to the volatility in the market where people are saying, ‘I don’t want to be long, I don’t want to be short,’” Schmidt said. “I want cash and I want to stand on my cash.”
Investors have sought to avoid risk by selling off commodities since the earthquake and there have also been concerns about temporary loss of demand for grains in Japan due to damage to ports. Japan is a key buyer of high-quality wheat and Canadian canola, among other commodities.
Viterra, which is based in Western Canada but also has handling facilities in South Australia, had five ships en route to Japan Mar. 16 and did not expect disruption to unloading. The company ships 1.5 million to two million tonnes of wheat, barley and canola to Japan annually, mostly to southern Japan ports that escaped damage.
UNCERTAINTY ABOUT CROPS
Much of grain prices’ run-up earlier this year and in 2010 was due to crop problems in the Black Sea region, Canada and Australia.
The most serious of those crop problems, drought in Russia, is unlikely to be solved in one growing season and it’s possible that the country will extend restrictions on exports beyond this summer, Schmidt said.
Russia, previously a major wheat exporter, banned grain exports last summer.
“We have a view that it’s highly possible that those (restrictions) could be extended based on weather events,” Schmidt said. “I wouldn’t take the view that things are going to return to normal very quickly.”
LOOKING TO ACQUISITIONS
Viterra, which acquired ABB Grain in 2009, will look to further acquisitions that expand its geographic reach through its grain-handling and -processing network, Schmidt said.
The Black Sea region offers intriguing possibilities as Viterra buys grain there but currently has no port terminals or elevators of its own.
“The U.S. and Australia as consolidation opportunities are interesting to us and the Black Sea as a larger (crop) origination base.
“It’s something we would consider.”
– MAYO SCHMIDT