Merchants 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.

Investor pressure has centred on Bunge, which has drawn interest from both Glencore and Archer Daniels Midland for a potential mega-merger.

But LDC CEO Ian McIntosh is unconvinced on the merits of wholesale tie-ups.

“Each of the participants — the ABCDs, Gs, Cs, all the various acronyms — are becoming increasingly different businesses,” he said in a telephone interview, referring to the so-called ABCD quartet of ADM, Bunge, Cargill and Dreyfus, along with Glencore and Chinese-owned COFCO International.

“Which means that consolidation at total-company level is, I think, increasingly difficult to execute because the business fits have become less obvious.”

ADM CEO Juan Luciano is another who has played down the prospect of major consolidation, telling Reuters in January that he didn’t see the need for his company to enter “monster” transactions.

Privately held LDC expects consolidation to happen more locally, with more-focused tie-ups to speed its own shift further along the food chain, McIntosh said.

“I think you will see consolidation at a regional level,” he said, arguing that some struggling niche players would be taken over or exit some businesses.

For LDC, such deals could take the form of acquisitions or joint ventures, McIntosh said, noting that his group had reinforced its acquisition last year of an oilseed processing factory in Tianjin, China, by forming a joint venture to produce fish feed at the site.

McIntosh was talking after LDC reported a 12 per cent jump in group net profit last year, supported by a strong oilseed performance linked to demand for Brazilian soybeans during a U.S.-China tariff battle.

Profit was also helped by a very strong year in cotton and improved returns in other businesses, he said.

This year looks similar to last in terms of market conditions, but a settlement between Washington and Beijing would change the outlook, McIntosh said, adding that it is too early to talk about LDC’s performance this year.

McIntosh took the helm last September at a turbulent time for the 168-year-old company that also changed its finance chief, reported lower first-half profit and was burdened with an acrimonious buyout of minority shareholders and a bailout of Brazilian sugar business Biosev.

— Reporting for Reuters by Gus Trompiz in Paris.

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Several years of abundant grains supply on global markets have made it tough for Bunge and its rivals to turn a profit on their core business: buying, processing and selling corn, soy and wheat.

That has left the sector open to consolidation, and Bunge has received interest from both U.S. rival Archer Daniels Midland and Swiss-based commodities trader Glencore.

“I have, and management has, the board’s support,” CEO Soren Schroder told Reuters in an interview after the company reported a $69 million loss for the fourth quarter (all figures US$).

The loss, compared with a profit of $262 million a year earlier, is likely to raise shareholder pressure on executives to find a buyer or take more aggressive steps to shore up the agribusiness division.

“They have taken corrective actions,” said William Densmore, senior director at FitchRatings, after the earnings were announced.

“However, management credibility has lessened during the past year and any further operating challenges in 2018 could likely ratchet up the pressure.”

Bunge, whose shares fell more than five per cent in midday trading, warned analysts the impact on margins of global grains oversupply was expected to spill into the first quarter of 2018.

The company’s management insisted for the fifth quarter in a row their strategy would turn the company around.

Divestments including selling or shutting the firm’s sugar trading desk, changing shipping arrangements in South America and focusing on grains and oilseeds businesses were all part of that strategy, Schroder said.

Dutch food ingredients company Corbion said on Wednesday it is in talks to buy Bunge’s 49.9 percent stake in their oil joint venture in Brazil.

Hopes for 2018

Schroder pointed to improving soybean crush margins in the Americas and Europe, tightening global soymeal supplies and rising demand as motives for optimism for results in 2018.

The company should also make savings on shipping costs due to changes it has made in hauling contracts in South America, he said.

Schroder has forecast a brighter agribusiness outlook for more than a year, yet the segment, its largest in terms of revenues and volumes, has struggled.

Bunge was forced to lower agribusiness earnings guidance for three straight quarters in 2017. On Wednesday, the company warned 2018 earnings for the segment would be well below historical averages.

Merger talk

Schroder declined to comment on market and media reports about Bunge being approached by rivals ADM and Glencore.

Less than a year ago, Schroder had said he would like to lead consolidation in the global grains industry.

In November, Bunge sweetened compensation packages for top executives in the case of a takeover, according to the company’s regulatory filings.

The company and other agricultural traders, including ADM and Cargill, have been trying to diversify into higher-margin sectors such as food ingredients and aquaculture to compensate for the poor returns on their traditional grain handling businesses.

Bunge said fourth-quarter 2017 sales in its agribusiness segment fell 3.5 per cent to $7.9 billion even as volumes rose.

On an adjusted basis, Bunge earned a profit of 67 cents a share in the quarter, against analyst expectations for $1.37 per share, according to Thomson Reuters I/B/E/S.

The company reported a net loss of 48 cents per share, which includes charges related to restructuring.

Bunge took a $66 million charge due to tax law changes in the U.S. and Argentina.

Net sales fell 1.6 per cent to $11.61 billion.

— Reporting for Reuters by P.J. Huffstutter and Karl Plume in Chicago; additional reporting by Anirban Paul in Bangalore.

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Large grain traders which make money by buying, selling, storing, shipping and trading crops have struggled in recent years with the global oversupply. Thin margins have squeezed core commodity trading operations, including those of Bunge, ADM, Cargill and Louis Dreyfus. Together the four are known as the “ABCDs.”

Consolidation is seen as one remedy. Glencore last year sought a tie-up with grains trader Bunge in what was viewed as start of a wave of consolidation in the industry.

The Journal quoted unnamed sources as saying that ADM had made the approach and that details were unclear.

White Plains, N.Y.-based Bunge operates in more than 40 countries and is Brazil’s largest exporter of agricultural products, while Chicago-based ADM says it has customers in 160 countries.

Bunge, which has a market cap of $9.79 billion, closed up 11 per cent at $77.56 on Friday (all figures US$). ADM has a market capitalization of $22.64 billion.

ADM said it does not comment on “rumours or speculation,” while Bunge was not immediately available for comment.

Strategy shift?

Grain companies have expanded into higher-margin endeavours, such as food ingredients and aquaculture, to offset weak results and wild swings connected to their traditional business of handling crops.

In 2014, ADM bought natural ingredient company Wild Flavors for about $3 billion in its biggest deal ever. The company has also expanded into handling healthy ingredients such as fruits, nuts and “ancient grains.”

“News of the ADM bid is a bit surprising given that ADM had been indicating the company’s strategic direction was more towards value-added rather the traditional commodities,” said Farha Aslam, analyst for Stephens Inc.

Hurdles loom

Any tie-up would likely face stiff scrutiny from regulators and opposition from farmers who fear handing more market control to ADM could hurt prices paid for wheat, corn and soybeans.

The biggest overlap between ADM and Bunge in the United States is in grain origination and oilseeds processing, Aslam said. The companies would probably need to divest facilities in North America and also possibly in Europe, she said.

Aslam also said it was possible ADM and Glencore could partner in a bid for Bunge to split up its operations.

“ADM would take the more value-added downstream businesses and Glencore would own the more ag commodity businesses,” she said.

Analysts at Morningstar said Bunge could go for about $90 to more than $100 per share. Aslam estimated that fair value for Bunge in a takeover would be $90 to $95 per share.

A grain trading source said there is so much overlap of oilseed crushing assets between the two companies that the deal looks defensive – a way to keep Glencore from acquiring Bunge. Still, it would shore up ADM’s assets in South America, the trader said.

Bunge rebuffed Glencore last year, and the two struck an agreement that temporarily prevents Glencore from making a hostile bid, according to news media reports.

An ADM-Bunge merger would also face opposition from farmer groups in key agricultural markets, including the U.S., European Union, China, India and Brazil, said Erik Gordon, a professor at the University of Michigan’s Ross School of Business.

The companies’ relative tardiness in joining the big-agriculture merger game — following on the heels of DowDuPont, Nutrien and others — would make gaining regulatory approval even tougher, Gordon said.

“When you’re the first one, there’s still more competition. Once they’ve let a few through, they may have second thoughts,” Gordon said.

Illinois farmer Dan Henebry, who delivers corn and soybeans to ADM’s North American headquarters in Decatur, Illinois, said he was worried a takeover of Bunge could lead to grain handlers paying farmers less for their crops.

“We’ve had so many mergers,” Henebry said. “Less competition is not good.”

Rodney Weinzierl, executive director of the Illinois Corn Growers Association, said they would watch the deal closely even though Illinois farmers have a fairly diversified set of buyers for their corn, ranging from ADM and Bunge to cattle ranchers.

“Obviously when a couple of our customers talk about being one customer, you lose competition,” he said.

— Reporting for Reuters by John Benny in Bangalore, Rod Nickel in Calgary, Tom Polansek in Chicago, Chris Prentice in New York and Diane Bartz in Washington; writing by Peter Henderson and Anna Driver.

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Bunge had rebuffed a takeover approach by Glencore in May. Speculation has swirled for months that Glencore would make another takeover approach. The standstill agreement suggests it is still interested in a deal and may be only biding its time, the newspaper said.

The standstill agreement, in which Glencore agreed with Bunge not to buy any more Bunge shares or make an unsolicited takeover approach, expires early next year, the Journal said, citing sources.

Glencore declined to comment on the story. Bunge did not immediately reply to a request for comment.

A string of poor results by large multinational grain trading companies has whetted investors’ appetite for an industry consolidation.

Large grain traders have struggled in recent years as a global oversupply and thin trading margins have squeezed their core commodity trading operations, including those of Bunge and rivals Archer Daniels Midland, Cargill and Louis Dreyfus.

The companies, known as the ABCD quartet of grain trading giants, have also been facing stiff competition from rivals like Glencore that are seeking to expand agriculture units and gain a greater foothold in the key production areas such as the U.S. and South America.

Glencore Agriculture, a partnership between the London-listed mining company and two Canadian funds, includes the operations of Canadian grain handler Viterra, which it took over in 2012.

Bunge shares were up 6.7 per cent at US$72.36 on Friday afternoon. Glencore shares rose 2.4 per cent to 376.68 pence.

— Reporting for Reuters by Karl Plume in Chicago; additional reporting by Barbara Lewis in London.

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The combined companies could handle as much as seven per cent of the U.S. corn supply of over 15 billion bushels, according to the companies’ websites.

“Both Lansing and Interstate believe the industry needs consolidation and want to be out at the forefront of a more efficient and customer-focused business model,” Lansing CEO Bill Krueger said in a joint statement with Interstate on Tuesday.

Interstate last year sold two grain elevators in Ohio to Smithfield Foods. Smithfield, the world’s biggest pork producer, was seeking to eliminate middlemen such as grain handlers in a push to buy directly from farmers.

Glencore Agriculture, jointly owned by Glencore and two Canadian pension funds, last month approached Bunge about a merger after Bunge CEO Soren Schroder said consolidation was needed.

Lansing, which operates a Canadian trading office in Vancouver, was founded in 1922 and handles nearly one billion bushels of corn annually, supplying livestock producers in the U.S., Canada and Mexico, according to its website.

Grain and energy trader The Andersons owns about 39 per cent of Lansing Trade Group. The two companies also operate Ontario grain and oilseed handler Thompsons through a joint venture.

Lansing in 2015 also sold about 20 per cent of its equity for US$127.5 million in cash to New Hope Liuhe Investment Inc, a U.S. subsidiary of Chinese hog and feed company, New Hope Liuhe Co., according to a press release on its website.

Interstate Commodities handles about 200 million bushels of grain with annual sales of US$2 billion at elevators and rail terminals in South Dakota, Nebraska, Illinois, Ohio and other U.S. states, according to its website.

“Lansing and Interstate have had a strong relationship for decades and believe now is the perfect time to combine our teams,” Interstate CEO Greg Oberting said in a statement. “As a combined company, we will be able to grow both organically and through additional acquisitions.”

The deal was expected to close in the third quarter. Terms were not disclosed.

— Michael Hirtzer reports on commodity markets for Reuters from Chicago.

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Statistics Canada’s 2016 Census of Agriculture, released Wednesday, counted 271,935 farm operators — that is, people who make management decisions on an agricultural enterprise — on agricultural operations, down from 293,925 at the previous census in 2011.

Of those, StatsCan said, operators under 35 years of age accounted for an increasing share of total operators and their absolute numbers also rose, from 24,120 in 2011 to 24,850 in 2016, for the first absolute increase in that age bracket of operators since 1991.

Women also accounted for an increasing share of operators in 2016, at 77.970, or 28.7 per cent, up from 27.4 per cent in 2011. Of farm operators aged 35-54 years, women made up 30.7 per cent, followed by age 55-plus (27.7 per cent) and under 35 (26.4 per cent).

The average age of operators rose from 54 in 2011 to 55 in 2016 — a trend StatsCan said “parallels the aging of the general population.”

The 2016 census also found that 44.4 per cent of all operators did some off-farm work, “usually as a means of supplementing their total income,” StatsCan said, with 30.2 per cent of operators working off-farm an average of 30 hours a week or more.

Unsurprisingly, the census showed continued consolidation in the ag sector, with 193,492 farms in 2016, down 5.9 per cent from 2011. However, StatsCan noted, the decrease marks the lowest rate of decline in 20 years.

The average area per farm increased from 779 acres in 2011 to 820 in 2016. Farm size “varied considerably” based on region and farm type, with the largest on average found in Saskatchewan (1,784 acres) and the smallest on average in Newfoundland and Labrador (174 acres).

Area dedicated to cropland rose 6.9 per cent from 2011, to 93.4 million acres in 2016, as land flooded during the 2011 census was back in production, summerfallow decreased and “marginal land” was converted to crops. While cropland grew, StatsCan noted, woodlands and wetlands as well as pasture decreased.

Field crop area grew from 69.7 million acres in 2011 to 78.5 million acres in 2016, while hay and alfalfa cropland declined 16.6 per cent, or 2.8 million acres) and pasture decreased by 4.4 per cent, or 2.2 million acres.

Oilseed/grain-type farms remained the most common type, increasing from 30 per cent in 2011 to 32.9 per cent in 2016. In the Prairie provinces, 46.3 per cent of farms fell into this farm type. Next up, beef-type farms accounted for 18.6 per cent of agricultural operations, up from 18.2 per cent in 2011.

Canada’s total farm area slipped 0.9 per cent, from 160.2 million acres in 2011 to 158.7 million acres in 2016.

“Shifts in tenure” accounted for some of that decline, as rental agreements tend to cover only productive land, StatsCan noted.

Value of land and buildings used by agricultural operations increased 37.5 per cent, from $311.2 billion in 2011 to $427.9 billion in 2016 (all value increases are in 2016 constant dollars).

Land and building values varied across the country, however, ranging from an average of $1,210 per acre in Saskatchewan to $9,580 per acre in Ontario; the national average value sat at $2,696 per acre.

Farmers also continued to report larger and more expensive equipment; tractors over 149 pto horsepower rose from 85,681 in 2011 to 104,990 in 2016, while their value increased 50 per cent to $9.4 billion. Total tractors under 149 pto hp fell from 600,233 to 546,276.

The total value of farm machinery and equipment owned and leased by agricultural operations increased 15.4 per cent, to $53.9 billion. — AGCanada.com Network

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The diversified trading and mining group had pointed to the possibility of making bolt-on acquisitions after posting improved results for 2016 and there has been regular speculation that it was looking at the U.S. grain sector because of its limited presence there.

Glencore, which became a major international grain trader through its 2012 takeover of Regina-based Viterra, sold 50 per cent of its agriculture business last year to two Canadian investment funds.

“I think the industry needs consolidation but in practice it’s easier said than done,” Glencore Agriculture CEO Chris Mahoney told the FT Commodities Global Summit in Lausanne.

Mahoney said that deals among the biggest global traders, such as Archer Daniel Midland, Cargill and Bunge, could come up against regulatory constraints on competition grounds while smaller players are less attractive.

“If you drop down a tier, some of the smaller companies, if you were an acquirer, don’t necessarily have what you would like. They don’t have big assets in the right locations,” Mahoney said.

Glencore’s preference is for physical assets with an export focus, but a shift in agricultural commodities away from trading toward processing and logistics makes it less critical to buy assets in the U.S., he said.

“I think the U.S. was probably more important for us 10-15 years ago than it is today,” he said. “But it is still the world’s biggest exporter. If could find the right thing at the right price, maybe, but that’s already quite a challenge.”

Agricultural commodity trading firms are emerging from a tough couple of years in which high supply and low volatility have cut margins and prompted some to shrink their trading desks and put some assets up for sale.

— Reporting for Reuters by Gus Trompiz.

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Trump met on Wednesday with the leaders of Monsanto and Bayer, who pitched the benefits of their proposed US$66 billion merger. While critical of other large tie-ups, Trump has not publicly taken a stance on the Bayer-Monsanto deal.

The secretary of the U.S. Department of Agriculture (USDA) will not approve or reject the merger but will face the issue of industry consolidation.

Dow Chemical has proposed to merge with DuPont, and China National Chemical Corp. (ChemChina) is seeking to acquire Syngenta.

Trade, environmental regulation and the 2018 federal farm bill are also expected to be at the top of the farm agenda once Trump takes office Jan. 20, according to members of an agricultural advisory committee he formed during the campaign.

How Trump responds on those issues — and who he picks to lead USDA — could determine whether he is able to maintain the strong rural support he demonstrated in the Nov. 8 election.

Some committee members told Reuters they have had meetings with Trump and his advisers, and have suggested possible nominees to help define the type of person who should lead the department.

Former Georgia governor Sonny Perdue is Trump’s leading candidate to run the department, a senior Trump transition team official said last week.

Trump has also met with Elsa Murano, undersecretary of agriculture for food safety under President George W. Bush, and Chuck Conner, head of the National Council of Farmer Cooperatives.

He has also talked with Abel Maldonado, former lieutenant governor of California and co-owner of Runway Vineyards; Tim Huelskamp, former Republican U.S. representative from Kansas; and Sid Miller, Texas agriculture commissioner.

Trump’s committee wants someone who is familiar with day-to-day farm life, can open up new markets for trade and will pressure federal regulators to ease environmental restrictions, according to a dozen committee members interviewed by Reuters.

“The sooner we have someone in place (as agriculture secretary), the better,” said Mike Strain, Louisiana’s commissioner of agriculture and forestry, and part of Trump’s agricultural advisory committee.

A.G. Kawamura, a former California agriculture secretary who is on the committee, said discussions within Trump’s transition team were “free and flowing” about who should head the agency.

USDA is made up of 29 agencies and offices that perform jobs ranging from agricultural research to working with foreign governments to facilitate trade.

“Generally, the country knows who the proposed cabinet is going to be before Inauguration Day. But if I’ve learned anything this past year, it’s that you can’t make assumptions about what will happen,” he said.

John Block, an Illinois corn, soybean and hog producer who served as USDA secretary under President Ronald Reagan, is certain Trump will make the right choice.

“We like to think we’ll see a conclusion soon, so we can look to the future,” he said. “But we have plenty of confidence in Trump, and we’re hanging in there.”

One key trait some are looking for: someone to stand up for farmers amid a flurry of merger deals, such as the Bayer-Monsanto tie-up. But even members of Trump’s own agricultural advisory committee disagree about the deal’s merits.

Bayer CEO Werner Baumann and Monsanto CEO Hugh Grant had a “productive meeting with President-elect Trump and his team to share their views on the future of the agriculture industry and its need for innovation,” according to a statement issued by both companies.

Bill Northey, Iowa’s agriculture secretary and a member of Trump’s agricultural advisory team, said he believed the president-elect was paying attention to the Monsanto-Bayer merger because rural voters supported him in the election. He said it was possible that parts of the deal might be “beneficial and pieces of it would be detrimental.”

— Reporting for Reuters by Tom Polansek and P.J. Huffstutter in Chicago. Additional reporting for Reuters by Mike Hirtzer and Theopolis Waters in Chicago.

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Responding to a question during a company investor day in Toronto about how possible tie-ups of ChemChina and Syngenta, or of Bayer and Monsanto, could affect Agrium, Magro said assets could become available if the companies need to raise capital or satisfy antitrust concerns.

“We’re watching the situation carefully,” he said. “From a consolidation perspective, this is healthy and normal, as part of the industry… There could be some very good opportunities.”

The company would be interested in proprietary seed or chemicals that fit its portfolio, Magro said. Many of the big producers are already suppliers of Agrium’s farm retail stores.

Bayer made an unsolicited US$62 billion offer for Monsanto in May, aiming to create the world’s biggest agricultural supplier. Monsanto turned it down but said it was open to further talks.

Shareholders in Swiss pesticides maker Syngenta have a deadline of July 18 to accept a US$43 billion takeover bid from state-owned ChemChina.

Agrium is also looking for acquisitions of more retail stores and plans to claim a quarter of the U.S. market over time, up from its current leading share of 17 per cent.

Agrium intends to build 10 to 30 stores in the region by 2020, Magro said.

— Rod Nickel is a Reuters correspondent covering the agriculture and mining sectors from Winnipeg.

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Reuters on Tuesday quoted two unnamed sources as saying Monsanto can see the logic of combining with the German drugs and crop chemicals group, as per Bayer’s proposal released Monday, and believes a deal could get the necessary antitrust and other regulatory approvals.

In a company statement Tuesday, Monsanto described itself as “open to continued and constructive conversations to assess whether a transaction in the best interest of Monsanto shareowners can be achieved.”

Monsanto said its board hasn’t yet set a timeline for any “further discussions” on the matter and emphasized there’s “no assurance” that a deal would be done or an agreement entered.

“We believe in the substantial benefits an integrated strategy could provide to growers and broader society, and we have long respected Bayer’s business,” Monsanto CEO Hugh Grant said in the company’s release.

“However, the current proposal significantly undervalues our company and also does not adequately address or provide reassurance for some of the potential financing and regulatory execution risks related to the acquisition.”

Bayer will now have to decide whether to raise its bid, even as the company faces criticism from some shareholders that its $122-per-share offer is already too high. The other options are to walk away, or mount a hostile bid (all figures US$).

It was not clear what price Monsanto would be willing to sell for.

The St. Louis, Mo.-based company has confidence in its standalone plan and believes shareholders deserve a better offer, said Reuters’ two sources, who asked not to be identified because the deliberations are confidential.

Global agrochemicals companies are racing to consolidate, partly in response to a drop in commodity prices that has hit farm incomes. Seeds and pesticides markets are also increasingly converging.

ChemChina plans to buy Switzerland’s Syngenta for $43 billion, after Syngenta rejected a bid from Monsanto. Dow Chemical and DuPont are forging a $130 billion business.

With German rival BASF having previously considered a tie-up with Monsanto, Bayer has moved to avoid being left behind.

Leverkusen-based Bayer’s unsolicited bid for Monsanto is the largest all-cash takeover on record, according to Thomson Reuters data, just ahead of InBev SA’s $60.4 billion offer for Anheuser-Busch in June 2008.

Bayer said on Monday it would finance its cash bid with a combination of debt and equity.

— Reporting for Reuters by Greg Roumeliotis and Mike Stone in New York, Patricia Weiss in Frankfurt and Pamela Barbaglia in London. Includes files from AGCanada.com Network staff.

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