Agriculture traders seem resigned to the idea that low prices are here to stay.
Years of bumper grain harvests, along with low prices and diminished volatility, have made it harder for the top firms to make money buying and selling major crops like wheat, corn and soybeans. Gluts, which have pushed crop prices to near the lowest since 2009, will probably last for a while yet, executives said at the FT Commodities Global Summit in Lausanne, Switzerland.
“Prices will remain under pressure unless we develop a weather problem,” Gonzalo Ramirez Martiarena, chief executive officer of Louis Dreyfus Co., told the conference on Tuesday.
During the boom years, the industry thrived on price swings and expanded in a bet that bigger populations would drive food demand and profits. But massive harvests have helped push the Bloomberg Agriculture Subindex down almost 50 percent since 2012. That’s forced a shake-up at many companies, including Archer-Daniels-Midland Co. and Chinese food giant Cofco Corp.
Agriculture commodities were mixed in trading on Wednesday. Wheat, corn and soybean futures advanced, while sugar and coffee retreated.
The industry is still being plagued by over-investment and a lack of supply discipline, said Chris Mahoney, head of Glencore Plc’s agriculture business.
“At the moment, there is no shortage,” he said at the conference. “People sitting on their hands for three or four years would help.”
Trading also became more difficult in the past decade as the market has greater access to information about prices and physical flows, Mahoney said. Building relationships isn’t as important as it used to be, and such problems are here to stay, he said. Owning infrastructure is key to thriving in the trading business, he said.
Glencore, which sold half of its agriculture division last year to cut debt, last month said it wants to expand into U.S. agriculture. The commodity trader and miner is looking at assets such as export terminals and inland silos, or buying a complete business, people familiar with the matter said at the time.
“We like asset-heavy businesses; the right size and scale; big assets,” Mahoney said. Glencore may have an advantage buying assets in some markets because the largest traders — ADM, Bunge Ltd., Cargill Inc. and Louis Dreyfus — may be constrained by anti-trust issues in some regions, he said.
Agriculture merchants may have to place more emphasis on cost savings, said Carl Casale, president and CEO of farmer cooperative CHS Inc.
“It is not so much about trading, it is about supply chain management,” he said at the conference, adding that asset valuations are too high. “The opportunities are not there yet.”