Editorial: Captive grain, and captive farmers?

COFCO likley to create waves for the future of grain pricing

Those who follow livestock markets will know the term “captive cattle” — feedlot cattle owned by the large packers, and which they can use to maintain supply and/or take the pressure off rising open-market prices. In the past that’s led to some U.S. government intervention, such as mandatory reporting of purchases and prices.

Recent developments in the grain market make one wonder if we’ll soon be hearing the term “captive grain,” but it doesn’t seem likely that the U.S. government or anyone else will be able to do anything about it.

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Tod Wallace
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The international grain business has been dominated by large players for a long time, but now they’re becoming fewer and larger.

And if you think that the era of the state trading agency ended with the end of the wheat board monopoly, think again. COFCO is reportedly set to play a much bigger role.

Who’s COFCO? It’s the China National Cereals, Oils and Foodstuffs Corporation, which used to be known as Ceroilfood back when it was mainly the agency responsible for imports. It’s now a diversified conglomerate, involving farming, milling, soy processing, hog production, finance, transportation, port facilities, hotels and real estate, and is now listed as a Fortune 500 company.

Through a joint venture with China Investment Corp. — also state owned — COFCO has acquired majority interest in two Dutch trading companies to form COFCO International Holdings. It reportedly intends to become a major competitor to the “Big Four” global agribusiness giants — ADM, Bunge, Cargill and Louis Dreyfus, though perhaps that should be “Big Five” now that Glencore is in the picture. It owns 675,000 acres of farmland in the former Soviet Union, and 200,000 acres in Australia. You can imagine that as with captive cattle, controlling production from that much land would give Glencore a bit of influence in the market.

But Glencore is a piker compared to China. In 2013 it announced a long-term lease of three million hectares (seven million acres) in Ukraine. How much farmland China has acquired in Africa is not clear, but one estimate in 2013 put it at 4.9 million hectares (12.3 million acres). Others put the figure much higher.

Concentration of ownership across the supply chain is not new — Cargill, Bunge, Dreyfus and ADM own elevators and processing facilities in both importing and exporting countries. But COFCO won’t be only in those businesses — it will be the main player in the world’s largest importing country and a major exporter from multiple origins, including its own farmland. Imagine the power it will have to manipulate the futures market, or to avoid using futures altogether.

Former ADM CEO Dwayne Andreas (ADM has now completely absorbed the former giant trading company Toepfer) used to say that waiting for a free market in grain was like leaving the porch light on for Jimmy Hoffa. It seems that’s more true than ever.

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