By Jacob Bunge and Jesse Newman
Farmers have spent the past few years cutting their spending to
cope with a global glut of crops. Now it's commodity traders'
turn.
Archer Daniels Midland Co. and Bunge Ltd., among the companies
that dominate world-wide grain trading and processing, said this
week that they are slashing hundreds of millions of dollars in
annual spending and restructuring operations to navigate a world
awash in corn, soybeans and wheat.
For grain traders, "this has been a humbling year," said Soren
Schroder, Bunge's chief executive, in an interview Wednesday as
after the company reported a decline in quarterly profit.
Five years of back-to-back bumper crops in markets across the
globe have kept grain prices low and upended traditional dynamics
in the farm sector. Trading giants like ADM, Bunge and Cargill
Inc., which buy farmers' crops to market and process, are being
squeezed.
Farmers are opting to store grain rather than sell it to grain
companies at low prices. Some food companies, meanwhile, are
placing fewer long-term orders for grain and ingredients since
prices are expected to stay cheap. As low prices persist, the
situation grows more difficult for the grain trading giants.
Bunge, based in White Plains, N.Y., Wednesday reported a 22%
decline in quarterly profits due to pressure on its crop-trading
and soybean-processing businesses; the company reduced the earnings
projection for its grain-trading division for the third time this
year.
Chicago-based ADM on Tuesday said its quarterly net income
dropped by 44%, weighed down by declining U.S. grain exports, as
cheap Brazilian corn undercut U.S. shipments.
Cargill, a top commodities dealer based in suburban Minneapolis,
said in September its quarterly grain-trading and processing
results declined compared with the same period a year ago and
blamed slower grain markets and weak prices.
Agribusinesses have to adjust to the shifting global marketplace
for basic foodstuffs. Farmers in South America and other
international breadbaskets are harvesting bumper crops, generating
fierce new competition to U.S. grain. Russia recently claimed the
world-wide lead in wheat exports, and Brazil dethroned the U.S. in
soybean shipments five years ago.
The U.S. remains the largest corn exporter, but its dominance is
waning. U.S. corn exports this season are projected to fall nearly
20% from a year earlier, hitting their lowest level since a drought
in 2012 shriveled fields, according to the U.S. Agriculture
Department. South American farmers' massive corn harvest this year,
along with currency shifts that have made those crops cheaper, have
enabled Brazil and Argentina grain to encroach on the U.S. corn's
traditional period to supply international buyers, trading-firm
executives said.
"The operating environment in the third quarter was more
challenging than we have anticipated even three months ago," said
Juan Luciano, ADM's chief executive, citing U.S. crops' "lack of
competitiveness" against Brazilian varieties.
In response, ADM has been restructuring to reduce expenses. Mr.
Luciano said the company will trim about $200 million in annual
capital spending in 2018, with less investment in its crop trading
and shipping operations. Bunge in July unveiled a restructuring
plan to cut $250 million in annual expenses, and executives this
week said the company eliminated 150 jobs in the most recent
quarter. "We all have to get leaner," Mr. Schroder said.
Other farm giants feel pressure, too. Mosaic Co., one of the
world's largest fertilizer makers, is grappling with a global
oversupply of crop nutrients, exacerbated by weak crop prices and
farm incomes. The company on Tuesday slashed its dividend for a
second time this year and said it would idle a high-cost Florida
plant as it weathers a difficult agricultural market. Its stock has
tumbled 23% in 2017.
Farm cooperative company CHS Inc., which trades grain and sells
supplies to farmers, this week agreed to deals selling its Canadian
retail locations to Winnipeg-based agricultural firm Richardson
International Ltd. and to United Farmers of Alberta Co-operative
Ltd. Over the first three quarters of CHS' financial year, the
company's earnings declined by 58%.
Bunge's Mr. Schroder said that the oversupply problem could ease
if U.S. farmers respond to persistently low grain prices by
planting fewer acres, and producing less grain.
But many farmers, trudging through the deepest farm-economy
slump since the 1980s, are doing the opposite. Many are focused on
boosting crop yields to combat low prices. That strategy could keep
domestic stockpiles elevated, holding down prices and continuing
farmers' dependence on crowded export markets.
"The producer only has one choice with price levels where
they're at, and that's to try to outrun this low commodity
situation by producing as many bushels he can," said Matt Bennett,
43, who farms 3,000 acres in Windsor, Ill. "If things don't change,
they're going to continue to get worse."
(END) Dow Jones Newswires
November 02, 2017 07:14 ET (11:14 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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