World Grain - June 2018 - 6

FROM THE EDITOR

Big grain traders caught
in the middle
EDITORIAL STAFF

he long-established methods that the
world's biggest agricultural traders
have used for many years to make
money through grain sales are over.
That proclamation, made by Gert-Jan van
den Akker, president of Cargill's agricultural
supply chain division, at the FT Commodities Global Summit in London this spring,
was a stunning admission that the world's
agribusiness giants no longer have a decided
edge over grain producers when it comes to
grain merchandising. At that same event,
Gary McGuigan, president of global trade
at Archer Daniels Midland Co., Cargill's
longtime rival, echoed van den Akker's sentiments, saying that the traditional ways of
buying crops at one origin and dropping it
off at a port were becoming outmoded.
"I just don't see how that sort of thing will
survive," McGuigan said.
When the men overseeing trade at two of
the world's largest agribusiness companies
say such a dramatic shift is taking place in
grain trading, it's certainly worth noting.
Add to that the comments from Bunge CEO
Soren Schroder, who last year said a "structural shift" was occurring in global agricultural commodities markets and consolidation in the industry was inevitable, it's clear
to see where the situation is headed. In fact,
it's been rumored for months that Bunge
might be the biggest domino to fall in this
trend toward consolidation, as it is being targeted for a takeover by ADM or Glencore.
It's no secret that the world's top agricultural companies have been dealing with
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many years, grain merchandisers at these
companies thrived, particularly when markets were the most volatile, so some have
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related to an oversupplied grain market that
has lacked volatility, causing prices to drop
and stay low for about four years now. To a
certain degree that's true, but it also appears
the industry is undergoing a more structural
change, one that means long-term relief may
not come for the world's largest grain traders even when supplies start to dwindle and
volatility returns to the market.

In years past, what separated these grain
traders from producers and consumers was
the inside knowledge that they possessed. But
up-to-the-minute data on commodity prices,
ZHDWKHUFURS\LHOGVDQGWUDGHÀRZVDUHQRZ
available through technology advances and
also affordable for those who want it.
Rather than taking their grain directly to
the local elevator as they harvest it, farmers
in places like the United States, Brazil and
Ukraine are now building larger storage on
their properties - for example, since 2003
U.S. farmers have expanded storage capacity
by 20%, according to the USDA - which
allows them to hold it until prices rise and/
or sell it directly to the end user, essentially
cutting out the middle man.
During a recent Wheat Quality Council
meeting in Kansas City, panelists discussed
how an increasing number of wheat growers are bypassing commercial elevators and
essentially becoming ingredient suppliers to
ÀRXUPLOOVE\SURGXFLQJZKHDWWRVSHFL¿FDtion for millers. Andrew Hoelscher, a thirdgeneration farmer from Ellsworth, Kansas,
U.S., and founder of Farm Strategy Consultants, which advises production agriculture
operations across the hard red winter wheat
belt, told Milling & Baking News, sister publication of World Grain, that more growers
are starting to work directly with mills to
supply wheat with desired protein levels.
With the volume of grain they're storing
and handling diminishing, the world's comPHUFLDO JUDLQ WUDGHUV FXUUHQWO\ ¿QG WKHPselves in the unenviable position of being
caught in the middle of the age-old business
strategy of eliminating
the middleman. But the
good news is these inFUHDVLQJO\
GLYHUVL¿HG
companies rose to the top
by being nimble and creative, and they are more
OLNHO\ WKDQ QRW WR ¿QG
new sources of revenue to counteract their
declines in grain sales.

Editor-in-Chief
Morton I. Sosland
Editor
Arvin Donley
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Susan Reidy
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Chris Lyddon
China Consultant
Fengcheng Wang
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WORLD GRAIN (ISSN 0745-8991) Volume 36, issue 6,

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June 2018 / World Grain / www.World-Grain.com

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World Grain - June 2018

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