The firm, formerly known as Glencore Agriculture, made the headlines in 2017 for a failed takeover approach to Bunge, one of the giant names of global grain trading, then valued at $11 billion (all figures US$).

Four years later, its owners have not made any sizeable deal and are still exploring ways to show value at a time of sustained higher grain prices. They are more likely to buy smaller or privately-held companies, expanding mostly in the U.S., but also South America and Australia, where Viterra already owns assets, the sources said.

Glencore owns 50 per cent of Viterra, having sold the other half to Canadian pension funds CPP Investments and British Columbia Investment Management Corp. (BCI) in 2016, for a total $3.125 billion.

Glencore, Viterra and CPP Investments declined to comment. BCI was not immediately available to comment.

With an EBITDA (earnings before interest, taxes, depreciation and amortization) of $991 million in the first half of 2021, the company holds 180 storage and handling facilities, 30 processing and refining plants and 25 port terminals, used to handle millions of tonnes of grains, oilseeds, pulses, rice, sugar and cotton around the world.

The company’s last deal was in 2020, when it bought out the stake it didn’t already own in Argentine soy crushing plant Renova from its bankrupt partner.

Other large western grain trading houses, including Archer Daniels Midland, Cargill and Louis Dreyfus, which battled years of global oversupply and thin margins, have seen their fortunes turn during the COVID pandemic as governments and food companies rushed to stockpile.

Still, the sector is ripe for a wave of consolidation similar to the mergers and acquisitions in the farm chemicals and seed industries to face off stiff competition from Asian rivals and guarantee supplies against shortages.

There is a big number of medium-sized companies and co-operatives, including The Andersons, Scoular and CHS among others, in the U.S., where agriculture and food contributes more than $1 trillion a year to the economy.

— Clara Denina is a Reuters correspondent in London, England; additional reporting by Maiya Keidan in Toronto.

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Maumee, Ohio-based Andersons sold its rail leasing business this week to American Industrial Transport Inc. It also aims to sell its railcar repair business within the next year, Bowe said.

The divestments represent a shift in focus at the 74-year-old company, which was looking to expand its rail business as recently as five years ago as grain trading profits slumped.

Grain trading profits have since rebounded as agribusinesses capitalized on supply chain disruptions during the U.S.-China trade war and the coronavirus pandemic. The Andersons’ larger rivals, including ADM and Cargill, have seen earnings surge this year.

“We’re committed to the ag side of our business… We feel we can make higher returns for our shareholders in those spaces than we were in rail,” Bowe said in an interview with Reuters.

The company will pay down debt, which swelled with its 2018 acquisition of U.S. grain handler Lansing Trade Group.

“We want to get to our normalized 2.5-times debt to adjusted EBITDA ratio. We were on our way to achieve that. Now we’ll achieve it sooner,” Bowe said.

The Andersons — whose Canadian assets so far include the former Thompsons grain business in Ontario, three elevators in northeastern Saskatchewan and one in southern Manitoba — is also eyeing investments to grow its renewable fuels and specialty food businesses, he said.

It also aims to capitalize on growing trends such as sustainable farming, agricultural carbon trading and plant-based protein, he added.

“We’re not going to buy a beef slaughter facility or a soybean crush plant… It’s about everything in the middle.”

Initial moves include supplying more agricultural oils to renewable diesel producers, including The Andersons’ ethanol venture partner Marathon Petroleum Corp., Bowe said.

Other investments will focus on organic fertilizers and plant nutrient products that help crops sequester more carbon in soils, he said.

— Karl Plume reports on agriculture and ag commodities for Reuters from Chicago.

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The grain merchant, which is part owned by diversified commodity group Glencore, dismissed Kleine due to disappointing results, two of the sources said.

It was not clear if Kleine was still with the company.

Glencore declined to comment. Kleine did not respond to a request for comment.

The Frenchman, who has spent six years at Rotterdam-based Glencore Agriculture, was in charge of one of the main product lines for the firm’s global grain trading business.

Glencore sources barley from production zones such as Europe and the Black Sea region to supply countries including China and Saudi Arabia.

Kleine has worked at Soufflet, one of France’s biggest grain handlers and a major supplier of barley malt for the beer industry.

— Reporting for Reuters by Gus Trompiz in Paris.

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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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Heckman, a founding partner of private investment firm Flatwater Partners and the former chief executive of grains trader Gavilon Group, was appointed acting CEO in January after long-serving CEO Soren Schroder was removed.

The leadership change comes after a turbulent period for the two-century-old company as profits in its core grain trading, handling and processing business thinned due to a global grain supply glut and a bruising U.S.-China trade war that redrew global commodity flows.

“After a thorough, global search process, the board clearly recognized that Greg has the unique combination of expertise, vision and leadership to successfully lead Bunge,” Kathleen Hyle, Bunge’s non-executive board chair, said in a statement.

Heckman joined the Bunge board late last year as part of a deal to ease activist investor pressure on the company following a string of weak results that made Bunge vulnerable to takeover attempts by rival Archer Daniels Midland and global commodities trader Glencore.

Bunge has in recent years invested in higher-margin businesses such as food ingredients and specialty oils to help minimize the impact of slumping profits in its core grains business.

The company is one of the “ABCD” quartet of global grain merchants, which include ADM, Cargill and Louis Dreyfus.

Shares of White Plains, N.Y.-based Bunge closed down 4.9 per cent on Thursday to US$48.60, ahead of the CEO announcement.

— Reporting for Reuters by Karl Plume in Chicago and Shanti S Nair in Bangalore.

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For the full year, adjusted operating earnings reached $3.2 billion, up six per cent from fiscal 2017 (all figures US$). Company officials said that was the highest ever, excluding earnings from Cargill’s investment in fertilizer producer the Mosaic Co., which it exited in fiscal 2011.

The impact of a drought in Argentina, and volatility in financial and commodity markets sparked by trade disputes between the U.S. and top commerce partners China and Mexico, helped Cargill’s grain trading unit to its strongest fourth-quarter showing in seven years.

Years of global oversupply have depressed grains prices and made it difficult for top agricultural grains merchants such as Cargill to turn a profit buying and selling food staples such as corn, soybeans and wheat.

But the drought in Argentina has eaten into the supply glut, while tit-for-tat tariffs have disrupted global grain flows, giving merchants space to profit.

Cargill’s chief financial officer Marcel Smits warned that too much volatility could be a problem, however.

The company has mapped out plans internally to deal with disruptions to trade, Smits said in an interview Thursday. But the plans could quickly lose relevance, given the speed at which the trade disputes are developing.

“We have potentially an advantage in terms of anticipating different scenarios, but it is hard to risk manage yourself through some of that volatility,” Smits said.

Over the past fiscal year, the demand for protein and animal feed was the biggest boost to Cargill’s bottom line.

U.S. beef packer margins have hit historic highs due to low cattle prices and strong retailer appetite heading into America’s summer grilling season.

Global demand for all proteins — whether from meat and poultry, or aquaculture and plants — is booming in emerging markets in Asia and Africa, in part due to rising incomes, industry analysts say.

Cargill has steadily expanded its portfolio in the sector in recent years, from investing in U.S. pea protein production to buying Pollos El Bucanero SA, one of Colombia’s largest meat producers.

In its traditional crop businesses, Cargill’s soy crush margins have improved worldwide, Smits said.

Cargill’s net earnings rose to $711 million in the fourth quarter ended May 31, from $347 million a year earlier.

— Reporting for Reuters by P.J. Huffstutter and Tom Polansek in Chicago; additional reporting by Karan Nagarkatti in Bangalore and Theopolis Waters in Chicago.

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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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The gains in protein offset a weaker year-on-year result for Cargill’s origination and processing unit as huge global grain stocks weighed down commodity prices and minimized market volatility, limiting trading opportunities.

Cargill and rivals — including Archer Daniels Midland, Bunge and Louis Dreyfus, known as the ABCD quartet of global grain trading giants — have been trying to diversify and lift earnings amid a global grains glut that has squeezed margins and dragged down profits.

Cargill’s diversification push has centered around its proteins business, with expansions in feed production and aquaculture and divestitures of its U.S. pork business and several cattle feedlots.

The privately held company said net income rose to $973 million in its first quarter ended Aug. 31, from $852 million a year earlier (all figures US$).

Excluding one-time items, Cargill reported quarterly net income of $888 million, up from $827 million a year earlier.

Revenue came in at $27.3 billion, slightly up from the $27.1 billion it posted last year.

The company’s animal nutrition and protein segment was the largest contributor to profit in the quarter, as low beef prices fueled demand while ample beef cattle supplies boosted margins. Global poultry earnings were down slightly from the year-earlier quarter.

Cargill’s food ingredients and applications unit was the second-largest earnings contributor in the quarter, led by gains in cocoa and chocolate products and sweeteners and starches, the company said. It was the fifth straight quarter of higher year-on-year results for the segment.

Origination and processing results fell below a year ago despite good soy processing results in Brazil and China and strong exports from Brazil. Slow farmer grain sales in South America created headwinds, the company said.

Industrial and financial services results were also lower than a year ago.

— Karl Plume reports on agriculture and agribusiness for Reuters from Chicago; additional reporting by Taenaz Shakir in Bangalore.

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CEO Soren Schroder said planned cost cuts should also help improve performance by the agricultural commodities trader after its second straight weak quarterly result.

Bunge and rivals Archer Daniels Midland, Cargill and Louis Dreyfus, known as the ABCDs in global grain trading, have been stung by a glut of crops following four years of bumper harvests around the world.

The companies have taken steps to diversify and invest in higher-margin businesses such as food ingredients and natural flavourings, but results of the efforts have been mixed.

Cargill’s restructuring effort has begun to yield higher earnings while Bunge has stumbled as its heavier presence in South America, home to a large share of its elevators and processing plants, has blunted gains.

Bunge, which rebuffed an approach from rival Glencore in May, will “evaluate the best path,” CEO Soren Schroder told analysts on a conference call, when asked whether selling the company was an option.

“There’s no entrenchment,” he added.

Bunge unveiled a cost-cutting and restructuring plan last month that it said will slash costs by $250 million by the end of 2019 (all figures US$).

Grain market recovery

Schroder forecast a turnaround in agricultural commodities markets that have burdened Bunge and the broader grain trading industry for more than two years with a string of huge global harvests and record supplies.

“Global corn stocks, while ample, are going down. Wheat stocks are going down. Soybean stocks, depending on how the U.S. crop comes out, probably have peaked,” Schroder said in an interview with Reuters.

“You’re setting yourself up for a rebound,” he added.

Global corn supplies are forecast to drop by nearly 12 per cent by the end of the 2018 season, and soybean stocks are seen down 1.3 per cent, according to the latest U.S. Department of Agriculture forecast. Global wheat stocks are seen up less than one per cent year-on-year after more than doubling over the previous decade.

But analysts, some of whom have cut outlooks for Bunge, were skeptical of an imminent recovery.

“That’s been a common refrain for the last several quarters among agribusiness companies yet we continue to see downward earnings revisions,” said Farha Aslam, analyst with Stephens Inc.

On Tuesday, rival Archer Daniels said slow farmer sales in South America dragged down profits for its soybean processing business.

The optimistic outlook by Bunge, which has seen shares whipsawed between poor results and speculation of a potential takeover, comes despite this year’s record corn and soybean crop in Brazil and forecasts for another bumper crop in the U.S., the world’s top two producers.

Some analysts expect Bunge’s second consecutive weak quarter to invite another approach by Glencore while others believe the overhaul could buy time to deliver on promised growth.

Regional partnerships and joint ventures remain possibilities for Bunge as it looks to prop up return on invested capital. U.S. grain handling and South American and Asian oilseed crushing are among sectors that are ripe for consolidation, Schroder told Reuters.

On Wednesday, the company slashed its full-year agribusiness earnings target to $550 million to $650 million, from $800 million to $925 million in the first quarter, and its food and ingredients target to $210 million to $230 million, from $245 million to $265 million. Both were cut for a second straight quarter.

Net income available to shareholders fell to $72 million, or 51 cents per share, in the quarter, from $109 million, or 78 cents per share, a year earlier.

Bunge shares were near unchanged on Wednesday at $78.08.

— Karl Plume reports on agriculture and agribusiness for Reuters from Chicago.

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The privately held company’s net income rose 66 per cent to $852 million in the first quarter ended Aug. 31 from $512 million a year earlier (all figures US$).

Excluding items, Minnesota-based Cargill’s operating profit rose to $827 million from $611 million. Revenue fell marginally to $27.1 billion from $27.5 billion.

The strong results came despite warnings earlier this year from Cargill and some agribusiness rivals that weak commodities prices and oversupplied grain markets would create headwinds for agricultural traders.

Grain prices have recently touched multi-year lows and U.S. farmers have begun harvesting what are expected to be record-large corn and soybean crops this fall.

Rival agribusiness Louis Dreyfus last week reported a small rise in 2016 first-half net profit, but cautioned that commodities markets remain difficult.

Bunge and Archer Daniels Midland (ADM) will report results in about a month.

Cargill is in the midst of a restructuring that has included the shedding of assets such as its U.S. pork business and U.S. retail agriculture outlets and the expansion of investments in food ingredients and aquaculture.

The moves are part of a long-term strategy for the 151-year-old company to bolster margins and become more responsive to commodities market swings.

“We’ve been charting a new path to higher performance, and it’s rewarding to see the many changes we’ve made resulting in gains across much of the company,” CEO David MacLennan said.

Cargill’s animal nutrition and protein segment saw earnings rise sharply from a year earlier as the company’s beef business benefited from rising demand and low cattle costs due to an expanding North American herd.

Earnings rose moderately in the company’s origination and processing business, which buys, sells, stores and processes crops such as corn and soybeans, as soybean processing margins improved, the company said.

Cargill’s profit was also helped by improved earnings from starches, sweeteners and edible oils.

— Karl Plume reports on agriculture and ag commodity markets for Reuters from Chicago. Additional reporting for Reuters by Arathy S Nair in Bangalore.

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