TOKYO -- The contested arena for major grain companies is shifting from the U.S. to South America and former republics of the Soviet Union, with companies that have strength in collecting and selling grains in Brazil and Ukraine seeing earnings increase. Powerhouses in the industry are under pressure to review their strategies as the global grain supply system changes.
"Record agribusiness EBIT (earnings before interest and tax) [was] driven by strong results in Brazil," said Soren Schroder, CEO of U.S. grain giant Bunge, at the company's earnings briefing in February.
Bunge's operating profit at its agribusiness jumped 18% on the year, in the year through December 2015, buoyed by operations in Brazil and other South American countries. Working with a network with local farmers since the late 1990s, the company benefited from the growth in exports from South America in 2015.
U.S. agriculture giant Cargill has dominated the global grain industry, accounting for an overwhelming share of the country's export transactions. Nowadays, however, "Cargill has seen its share decline, while other major grain companies are boosting their presence," said Continental Rice President Nobuyuki Chino.
Changing supply system
A transition has been occurring in the system. In the early 2000s, U.S. grains were on top in terms of both volume and prices in the export market. From the mid-2000s, however, the European Union as well as Russia and the former Soviet bloc increased crop yields for wheat, and Brazil boosted crop yields for soybeans and corn. Major grain companies other than Cargill beefed up their operations outside the U.S., and they now have greater shares in the export market.
In the 2003-2004 production year, the U.S. accounted for a 29% share of the export market for wheat, 62% for corn and 43% for soybeans. In the 2015-2016 production year, however, the U.S.'s share fell to 13% for wheat and to 30% for corn. Instead, the EU increased its share to 20% for wheat, while Brazil boosted its share to 20-40% for corn and soybeans.
Archer Daniels Midland, an Illinois-based agribusiness giant, and Gavilon Holdings, a subsidiary of Japanese trading house Marubeni, are now on a par with Cargill in transaction volume. ADM and Marubeni now have greater storage capacities in the U.S. than Cargill does.
As the collection and sales of grains, including exports, have only a small profit margin, grain companies are beginning to handle unconventional crops. Cargill has purchased ADM's global chocolate business. ADM announced in February it would invest in Harvest Innovations, which produces foods from nongenetically modified soybeans.
China's Cofco will likely be the next grain powerhouse. In 2015, the state-owned trader made Noble Agri, a joint venture with Hong Kong-based commodity trader Noble Group into a wholly owned subsidiary. Southeast Asian food traders are gaining power, too.