The group on Wednesday reported a jump in annual net profit to $1 billion, joining other global crop merchants in benefitting from high prices and strong demand in a year marked by Russia’s invasion of fellow grain exporter Ukraine (all figures US$).

LDC wants to accelerate capital expenditure, including on “complementary” acquisitions, to between $800 million and $1 billion annually during the rest of this decade, CEO Michael Gelchie said in an interview.

That compares with 2022 investments of $549 million, which already marked a rise from $372 million the prior year.

“That can and should be in the form of greenfield or brownfield or M+A-type investments (…), whether that’s core merchandising or in innovative business that really diversifies our portfolio,” Gelchie said.

Last year’s investments included the acquisition of Australia’s Emerald Grain. The deal price was about $102 million, subject to closing adjustments, LDC said in its annual report.

Improved results and the sale of a stake in 2021 to Abu Dhabi holding firm ADQ have eased pressure on LDC and main shareholder Margarita Louis-Dreyfus after years of modest profits and mounting debt.

Like its peers, LDC has been developing food ingredients activities, including plant-based proteins, to tap into consumer trends and be less reliant on commodity markets.

The group announced in December the creation of a food and feed solutions division.

Gelchie declined to give an outlook for LDC this year but said turmoil in the banking sector and rising interest rates may increase market volatility further.

Higher interest rates could dampen commodity demand and prices in the near term, though the longer-term outlook for commodities appeared bullish given an energy transition that has already boosted oilseed crushing margins for renewable fuel in North America, he added.

Regarding upheaval in the banking sector, Gelchie said LDC had no exposure to Credit Suisse and had “secure relationships” with its banks.

He declined to comment on any exposure to Credit Suisse for chairperson Louis-Dreyfus, whose holding firm had a reduced loan arrangement with Credit Suisse worth around $240 million as of September 2021.

— Reporting for Reuters by Gus Trompiz in Paris.

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The long-awaited flour mills sale was one of the first privatizations the kingdom planned as part of a wide-reaching overhaul of its economy.

The first milling company was awarded to Raha AlSafi consortium at 2.027 billion Saudi riyals (C$734.9 million), while the third mill went to Alrajhi-Ghurair-Masafi consortium for 750 million riyals, a statement by the National Center for Privatization and PPP (NCP) and the Saudi Grains Organization (SAGO) said.

The Raha AlSafi consortium was led by Saudi Arabian firm Almutlaq Group and also including Al Safi, Abunayyan Holding and United Arab Emirates-based Essa Al Ghurair Investment, said a source familiar with the matter, adding investment bank Canaccord Genuity acted as the financial adviser.

Alrajhi-Ghurair-Masafi included Saudi Arabia’s Al Rajhi and Al Ghurair Foods of the United Arab Emirates, the source said. The final financial bids were submitted on Sunday.

The privatization process had attracted initial interest from some of the world’s largest agribusiness companies, including Archer Daniels Midland and Bunge and was seen as a litmus test for other large state asset sales to follow.

But the source familiar with the matter said the bidders had mainly been from the Gulf, adding that Louis Dreyfus had been involved, before later dropping out.

The grain mills on sale come under the kingdom’s monopoly state grain buyer SAGO, one of the world’s largest wheat and barley importers.

“The crucial piece of information to know going forward is whether any of these companies will eventually be allowed to import their own wheat as opposed to receiving it from SAGO,” said a Middle East-based industry expert.

The qualification phase for the second and final stage of the privatization of the flour milling sector will launch shortly and include the sale of the second and fourth milling companies, according to the statement.

The lengthy process which started in 2016 has discouraged some potential bidders, according to grain industry sources.

HSBC is acting as the sole financial advisor for the process.

— Reporting for Reuters by Maha El Dahan and Saeed Azhar in Dubai and Tom Arnold in London.

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Winnipeg-based, privately-held P+H in September announced a deal to buy all 10 of the primary Prairie grain elevators built by agrifood giant Louis Dreyfus Co. between 1998 and 2003. The two companies have since closed that deal.

However, the federal Competition Bureau in December said it would ask the federal Competition Tribunal to make an order requiring P+H to sell either its own elevator at Moosomin, Sask., or the Dreyfus elevator P+H now owns about 60 km east, near Virden, Man.

The Moosomin and Virden elevators “were close competitors due to their proximity” along the Trans-Canada Highway, the bureau said at the time, as the companies “closely monitored each other’s wheat and canola prices and responded to competitive activity from each other by offering farmers better prices.”

The deal “eliminates this rivalry,” meaning “farmers in the corridor between Moosomin and Virden will earn less for their wheat and canola,” the bureau said.

According to documents filed Jan. 13 by the Competition Tribunal, P+H contends there’s no evidence of any alleged imminent harm to farmers, other than allegations by the bureau that the company says “are based on a misunderstanding of the grain handling industry.”

Or, as the tribunal put it, “there is a profound disagreement between (P+H and the bureau) on the complexity of the issues raised by this application and on a number of other fundamental matters, such as the main commercial imperatives underlying the grain handling business.”

(The Competition Bureau is the agency responsible for investigations and enforcement under Canada’s Competition Act. The bureau also decides whether to bring cases before the Competition Tribunal, which has federal jurisdiction to hear cases and make orders.)

In its Dec. 19 application, the bureau also asked the tribunal to allow an “expedited” process for this case, in order to have a hearing and a decision from the tribunal in place before the 2020 harvest.

But after a case management conference on Jan. 9, the tribunal on Jan. 13 turned down the request for an expedited process.

‘Not unreasonable’

Writing for the tribunal, chairman Justice Denis Gascon cited P+H’s concern that a sped-up process would create an “informational advantage” for the bureau.

As Gascon put it, P+H contends that the bureau “has already had the benefit of reviewing three expert reports” which the company submitted as part of the review process — whereas “relevant data” will still be coming in from third parties before a hearing and the bureau hadn’t yet provided any such reports of its own.

P+H also proposed a slightly less sped-up timeline and a hearing sometime in October and/or November this year, a period the tribunal describes as “after the harvest season.”

The bureau, Gascon wrote, “has not satisfied the tribunal that the alternative timeline proposed by P+H is unreasonable, unfair or impractical.”

Thus, the tribunal’s Jan. 13 decision calls for the bureau and the company to schedule discovery and pre-hearing steps that would bring the bureau’s application to a hearing in October/November.

Proposed timelines, Gascon wrote, should be filed by Feb. 17 and both parties are “strongly encouraged to include the mediation option” in setting up those timetables.

No other Dreyfus or P+H elevator was mentioned in the Competition Bureau’s December application to the tribunal — although six of the 10 Dreyfus sites are about an hour’s drive or less from at least one other P+H elevator.

Of those, the closest geographically are at Tisdale, Sask., where P+H has its own elevator as well as a Dreyfus facility. — Glacier FarmMedia Network

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The six companies — ADM, Bunge, Cargill, Louis Dreyfus, Cofco and Glencore Agriculture — announced Wednesday the project will be named Covantis, and have hired former ADM executive Stefano Rettore as the project’s leader until a CEO is in place.

“Covantis offers a path to improve agricultural trade, unlocking significant value for all players across the supply chain,” Rettore said in a release. “By working collaboratively with the industry, we have an opportunity to build a more effective, more efficient digital future for global trade.”

Rettore worked in international grain trading until May this year as president of ADM’s origination business. Before joining ADM in 2017 as its chief risk officer, he was president of the international trading arm of U.S. ag co-operative CHS.

ADM, Bunge, Cargill and Dreyfus — the four ‘ABCD’ companies known to dominate the world’s grain trade — first announced their partnership in October last year to develop the proposed platform.

China’s Cofco International, which has operated a Canadian grain trading office since late 2016, joined the partnership last December, followed by Glencore Agriculture — owner of Canadian grain firm Viterra — in September this year.

Project developers said they visited Brazil in October and met with various stakeholders in soybean trade and traffic bound for China from the Brazilian port of Santos, which they said will be “the first trade lane in our future platform.”

The Covantis platform isn’t expected to launch until sometime next year, organizers said. The project itself, as well as its governance and executive appointments, are subject to regulatory approvals.

The partners said last year their project’s initial focus will be to “automate grain and oilseed post-trade execution processes.”

On its new website, Covantis is billed as an evolution from paper documents to digital processes, supporting a contract’s enforceability by allowing a user to see the full history of any changes made or requested.

Covantis’ operators say their proposed system could automate an estimated 60 per cent of the tasks involved in executing a transaction, and speed up the documentation processes which are now handled on paper or via emails by seven to 10 days on average.

Today, they said, over 275 million emails are sent each year to process the estimated 11,000 bulk shipments of grains and oilseeds moved by sea.

“End-to-end visibility at all stages of vessel execution would prevent slow-downs,” Covantis’ operators said. “Every process, from loading to transit to discharge, will be trackable in real-time with Covantis.”

Furthermore, they said, the new system would cut down on the likelihood of error by automating repetitive data, allowing a user to import the correct information once, then “replicate it in a single click.”

In all, they said, the platform would help reduce re-keying of entries by 90 per cent, while boosting transaction speed by 70 per cent. — Glacier FarmMedia Network

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Louis Dreyfus (LDC) announced Wednesday it has an agreement in place to sell its 10 elevators across Western Canada to Winnipeg grain company Parrish and Heimbecker.

The two privately-held firms said the financial terms are to be kept confidential on this deal, which they expect to close in the fourth quarter of this year.

P+H said the deal will allow it to offer farmer customers “increased access to more competitive offerings in grain trading, handling and merchandising, as well as full-range crop input products backed by leading agronomic solutions.”

Rotterdam-based Dreyfus, the “D” in the “ABCD” group of global grain industry players, has been a direct player in the Prairie grain handling business since 1998, when it announced it would “enhance” its presence in Canada and build its own network of primary elevators.

Over the following five years, that network was built up to include the 10 elevators at Virden and Rathwell, Man., Aberdeen, Kegworth, Tisdale and Wilkie, Sask., Joffre, Lyalta, and Rycroft, Alta. and Dawson Creek, B.C. The elevators run between 21,340 and 53,040 tonnes in capacity.

The deal announced Wednesday, however, will not include LDC’s 10-year-old Yorkton, Sask. canola crushing and refining plant — one of North America’s largest, at a crush capacity of about 3,000 tonnes per day.

LDC will also keep its St. Lawrence River grains and oilseeds terminal, a 292,950-tonne capacity facility it set up in the 1960s at Port Cartier, Que., about 60 km southwest of Sept-Iles.

Growers who deliver to any of the 10 Dreyfus elevators will still be able to use the company’s MyLDC mobile app to manage their contracts with LDC until the deal closes, a Dreyfus spokesperson said. Beyond that date, growers who deliver directly to the Yorkton crush plant will still be able to use the app with no changes to its current offerings.

“P+H has built a great business, an excellent reputation, and their culture and long-term vision are a good fit for LDC employees and farmer customers — a key factor in evaluating the transaction,” Brant Randles, president of LDC’s Calgary-based Canadian arm, said in a separate release.

The two companies’ elevator networks have little direct overlap — both have elevators at Tisdale, and P+H has an elevator at Yorkton — although six other LDC sites are about an hour’s drive or less from at least one P+H elevator.

LDC noted the deal’s closing is still subject to “satisfaction of regulatory requirements and customary closing conditions.” A Dreyfus spokesperson confirmed via email that the deal is subject to approval from Canada’s Competition Bureau.

P+H CEO John Heimbecker, in that company’s release, described the deal as “a win-win for farmers seeking a more competitive grain and crop inputs offering as well as for the stakeholders within P+H and LDC who work to support them.

“Acquiring geographically strategic assets from a global leader like LDC makes us better and stronger by an order of magnitude.”

Randles, in LDC’s release, said the company “remain(s) committed to this important market, connecting Canadian growers with local and international food markets with a greater focus on value-added processing.”

Dreyfus, like its fellow majors, has recently been up against reduced profits from sourcing and shipping grains and oilseeds due to burdensome global commodity supplies and the ongoing trade war between the U.S. and China.

The company in May was reported to be considering offering equity stakes to outside investors for the first time in its history. — Glacier FarmMedia Network

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ADM and Bunge, as well as peers Cargill and Louis Dreyfus, known as the ABCD quartet of global grain trading giants, faced processing-plant downtime, rail and barge shipping delays and other supply uncertainty this spring as historic floods ravaged the central U.S.

The weather woes are heaping more pain on the battered U.S. agricultural sector already hard-hit by a years-long crop supply glut and the U.S.-China trade war now entering its second year. The tariffs China imposed on soybean exports from the United States in retaliation for U.S. duties on Chinese goods curbed shipments of the most valuable U.S. export crop.

The excessive rains and flooding could also have a lasting impact on the grain merchants, whose latest round of quarterly earnings will start this week. ADM and Cargill are viewed as particularly vulnerable due to their outsized U.S. footprints. Reduced U.S. corn and soybean plantings will likely cut available crop supplies in the United States, potentially driving up raw material costs and squeezing margins.

“They thrive on volumes and margins and both of those are going to be depressed in the coming year with the bushels being smaller and the margins likely not being there,” said Kevin McNew, chief economist with Farmers Business Network. “Export business is just going to fall off the cliff, especially for corn.”

The U.S. corn crop was more affected by floods than soybeans, because soy can be planted later in the season.

Weaker results

The first of the companies scheduled to report is privately held Cargill, which announces fiscal fourth-quarter earnings on Thursday.

The results will cover the March-to-May period, when flooding disrupted grain movement, including export shipments, and the year’s second “bomb cyclone” blizzard temporarily shuttered at least six Cargill grain handling facilities and a beef processing plant.

Cargill and ADM both own barge companies that haul grain and other products on the Mississippi River and its tributaries. Grain barge movement so far this year is down about 37 per cent from a year ago, according to U.S. Army Corps of Engineers data, due largely to prolonged river closures triggered by floods.

Cargill is expected to report weaker results compared with the very strong earnings of the year-ago quarter, due partly to expected lower profit in its origination and processing unit, said Bill Densmore, senior director of corporate ratings at Fitch Ratings.

Bunge and ADM will follow, with second-quarter results covering April, May and June scheduled for release on July 31 and Aug. 1, respectively. Privately held Louis Dreyfus is expected to issue interim first-half results in the autumn.

Shares of publicly traded ADM and Bunge are hovering just above three-year lows notched this spring as mounting concerns about U.S. plantings and trade fueled investor nervousness.

Uneven impacts

With its concentration of assets in the United States and its large U.S. ethanol business, ADM was likely hit harder by adverse U.S. weather than Bunge, analysts said.

ADM cited poor U.S. weather for a nearly $60 million drop in operating profit in its first quarter and warned in April that lingering weather impacts would cut second-quarter earnings by $20 million to $30 million (all figures US$). Some analysts expect ADM to post as large a hit to second-quarter earnings as in the first quarter as adverse weather stretched through the spring season.

“ADM’s first-quarter estimate of $50-60 million seems like a good starting point” for the second-quarter impact, said Seth Goldstein, analyst with Morningstar.

ADM’s soy processing, ethanol and sweeteners and starches units may post lower margins, and smaller corn and soybean crops will hurt its grain origination business, said Heather Jones, founder and senior analyst with Heather Jones Research LLC.

The price of corn, the most common feedstock for U.S. ethanol makers, has surged as U.S. farmers struggled to plant the 2019 crop due to a historically soggy spring. Cash corn premiums in parts of the eastern Midwest, where planting delays were most acute, are at a six-year high. Soybean prices hit a one-year top last week.

“Bunge is less exposed, but higher bean costs would squeeze soy crush margins in the U.S.,” Jones said. Bunge is the world’s largest soybean processor.

— Reporting for Reuters by Karl Plume in Chicago.

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Agricultural commodities traders have been grappling with lower profits from sourcing and shipping commodities such as grain and oilseeds, prompting cutbacks in trading teams, investments in food processing activities and acquisition speculation.

Bloomberg reported Friday that Dreyfus (LDC) was in talks with investors about selling equity stakes in the company, potentially opening up the family-controlled business to outside capital for the first time in its 168-year history.

“(CEO Ian McIntosh) confirmed that all options remain open, including the possibility of opening LDC’s capital to regional players who could help drive our development,” LDC spokeswoman Karen Saddler said in an emailed statement to Reuters.

“There are no specific plans, but all possibilities are open,” she added.

One source familiar with the matter said separately that the group was looking for a minority partner to get access to cash and a network.

Louis Dreyfus said last month that it planned to invest in the stock market flotation of Asian poultry and food company Leong Hup International, as it looks to increase its presence in food processing and cited regional partnerships as a way to expand.

The company also bought a stake in Luckin Coffee as part of a U.S. initial public offering planned by the Chinese chain last month.

Bloomberg said LDC had approached Chinese partners, such as COFCO, and its global trading arm COFCO International, as well as some of Japan’s biggest trading houses.

LDC said McIntosh meets a broad variety of stakeholders, including peers such as COFCO, which was not to say that he is looking to find a partner or discuss this with all those he meets.

— Reporting for Reuters by Gus Trompiz in Paris and Rama Venkat in Bangalore; additional reporting by Oliver Hirt in Zurich; writing by Sybille de La Hamaide.

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Traders have been anxiously awaiting proof from the U.S. Department of Agriculture that China is ramping up purchases of grains and soy from U.S. farmers, who are preparing their spring planting and trying to secure financing for seeds, fertilizer and land rents.

Now, trade experts and grain analysts warn the suspension of the reports is clouding the marketplace and potentially giving an advantage to big grain companies directly involved in the export trade. The government shut down partially at midnight on Dec. 21.

“We’re watching sales to China like a hawk,” said Ted Seifried, vice-president and chief ag market strategist for the Zaner Group.

Beijing resumed buying U.S. cargoes earlier this month, after the two countries agreed on Dec. 1 to a trade war truce. But hefty tariffs on U.S. cargoes remain in place, and there is uncertainty over how much the top U.S. soybean customer will purchase.

The gap also gives the large commercial grain merchants — such as Archer Daniels Midland, Bunge, Cargill and Louis Dreyfus — an advantage by allowing them to keep their export deals with countries like China and Mexico out of the public marketplace.

ADM and Cargill said on Friday they had no comment. The other two companies could not immediately be reached for comment.

Rich Feltes, vice-president for research with Chicago-based brokerage R.J. O’Brien, said the absence of USDA export sales data can increase the risk involved in trading agricultural markets, pushing speculators to the side.

“It gives a little bit of unfair advantage to exporters who either are or are not making sales, and can trade that information accordingly,” he said.

Along with its weekly export sales reports, USDA has issued daily announcements of grain and soybean sales over 100,000 tonnes since 1977. The reporting system was launched in response to the purchase of millions of tonnes of U.S. grain by the Soviet Union in 1972 in deals that resulted in soaring U.S. grain and food prices

Farmers at risk

University of Illinois agricultural economist Scott Irwin said the partial shutdown could also deal a blow to farmers suffering from the U.S.-China dispute, by delaying aid payments meant to help offset some of the losses for crops hit by retaliatory Chinese tariffs in a trade war launched by U.S. President Donald Trump.

“If you’re talking about cash in the farmer’s pocket, the longer this goes on, the longer it’s going to delay that program, which is really just getting ramped up,” Irwin said.

The shutdown entered its seventh day on Friday, and was on track to continue into next week and possibly longer. It affects about 800,000 employees of the Departments of Homeland Security, Justice, Agriculture, Commerce, and other agencies.

If the shutdown persists, it also could jeopardize the release of a host of hotly anticipated monthly and quarterly grain supply and demand reports.

USDA on Friday reiterated that the shutdown, if it continues, would halt its world agricultural supply and demand estimates (WASDE) report and reports by its National Agricultural Statistics Service, which tracks quarterly U.S. grain stocks and U.S. winter wheat seedings.

Those reports, along with an annual summary of U.S. crop production, were scheduled for release on Jan. 11.

In the reports, Feltes said analysts expected to see USDA trim its estimates of the average 2018 U.S. corn and soybean yields, imply strong feed usage of corn in the first quarter, and shed light on how many acres of winter wheat farmers were able to plant this past autumn, given excessive rains in many areas.

“Those are all bullish influences that we are going to be denied confirmation of,” he said.

— Julie Ingwersen is a Reuters commodities correspondent in Chicago; additional reporting by Tom Polansek, P.J. Huffstutter and Michael Hirtzer in Chicago and Humeyra Pamuk in Washington.

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The warning highlighted a string of trading woes at ADM, which has shed several key traders and consolidated offices amid a global grains glut.

The Chicago-based agribusiness said the outlook for its agricultural services segment, its largest in terms of revenue, appeared weaker than it did at the beginning of the year.

The segment makes money buying, selling, storing, shipping and trading grains and oilseeds. It includes ADM’s global trading desk, which turned in another weak quarter with lower year-on-year earnings.

“We’re working very hard in ag services to continue to improve our operations. We have been or facing a couple of years of very strong headwinds into that business,” CEO Juan Luciano said on a conference call with analysts.

“With ample stocks around the world, there is a very subdued environment for us to make profitable international trades,” he added.

ADM shares dropped more than 7.5 per cent to $42.28 (all figures US$).

The company will continue to analyze its trading operations for cost savings, but that most of the restructuring was done, he said.

The company said the profit outlook for its corn and soybean processing segments this year was stronger than earlier thought, offsetting the weaker view for agricultural services.

Brisk U.S. ethanol exports and strong U.S. grain exports following record corn and soybean harvests last autumn helped propel a 47 per cent jump in net first-quarter earnings over last year’s weak first quarter.

Bumper crop harvests in South America are adding to the world grain oversupply, but slow selling in Brazil has kept U.S. exports competitive in the global marketplace. South American competition may be a challenge in the second half of 2017.

Excess world grain stocks remain headwinds for ADM and rivals Bunge, Cargill and Louis Dreyfus, collectively known as the ABCD companies that dominate global grain trading.

Net profit attributable to ADM rose to $339 million, or 59 cents per share, in the quarter ended March 31, from $230 million, or 39 cents a share, a year earlier.

Excluding items, the company earned 60 cents per share, missing the average estimate by two cents, according to Thomson Reuters I/B/E/S.

Revenue rose to $14.99 billion from $14.38 billion.

— Karl Plume reports on agriculture and agribusiness for Reuters from Chicago. Additional reporting for Reuters by Siddharth Cavale in Bangalore.

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White Plains, N.Y.-based Bunge said net income available to shareholders plunged 82 per cent in the quarter, led by a steep drop in agribusiness, which buys, sells, stores, processes and transports crops around the world.

Bunge shares dropped more than nine per cent, the steepest decline in 15 months, to $68.62 (all figures US$).

The earnings miss came a day after rival grain trader Archer Daniels Midland (ADM) reported its third global trading loss in five quarters and warned of a weaker year ahead in grain trading, dealing ADM shares their biggest loss in eight years.

Low grain prices and a global grain glut have eroded margins for agribusinesses including Bunge, ADM and competitors Cargill and Louis Dreyfus. The companies, collectively known as the ABCDs, dominate the global grain trading business.

Earnings before interest and tax in Bunge’s agribusiness segment, its largest unit in terms of volumes and sales, fell more than 61 per cent to $109 million.

“Farmers in South America still have not sold over 70 per cent of their crops, record crops, and have held back in expectation of better prices,” Bunge CEO Soren Schroder said in a conference call with analysts.

The company said it expects “solid earnings growth” this year, but it cut its full-year earnings target for agribusiness by $95 million to $125 million and trimmed its food and ingredients unit target by $25 million.

Farmers in Brazil and Argentina are harvesting bumper corn and soybean crops this year, in contrast to 2016, when farmers held back crops that were reduced by weather.

Net income available to Bunge’s shareholders fell to $39 million, or 27 cents per share, in the first quarter ended March 31, from $222 million, or $1.54 per share, a year earlier.

On a per-share basis, profit from continuing operations was 31 cents in the latest reported quarter, down from $1.60 per share a year ago.

— Karl Plume reports on agriculture and agribusiness for Reuters from Chicago. Additional reporting for Reuters by Swetha Gopinath in Bangalore.

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