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Improving harvests rattle established order in commodity trading

November 01, 2017

Years of bumper crops in global agriculture – including oilseeds – is shaking the old order of international grain trading, as previously leading companies find it harder to uphold their profit margins.

, Improving harvests rattle established order in commodity trading

Massive harvests, such as the two previous Brazilian soyabean crops, are reducing volatility and trading opportunities in the marketplace, which has for nearly a century been led by the big ABCD companies, or Archer Daniels Midland (ADM), Bunge, Cargill and Louis Dreyfus Co, wrote Bloomberg on 18 October.

“The market has changed, the results aren’t what they used to be. That’s prompting firms to look to cut costs and make savings. There’s pressure and not everyone can stand it,” Miroslaw Marciniak, a consultant at InfoGrain and a former grain trader, told the news outlet.

Several of the large trading houses have reorganised their agriculture units and reshuffled their management, with at least 40 senior managers and executives leaving their positions at companies such as ADM and Louis Dreyfus.

According to data from recruiter Commodity Appointments, agriculture accounted for 43% of all job changes in commodities this year, far ahead of gas and power, which held the second place at 24%.

While there are several reasons for the change of the guard, according to Bloomberg they all occurred within the context of more difficult trading condition as increasingly available market data and better farm storage allowed growers and consumers to strike favourable deals without going through the traditional top traders.

“We have entered difficult times for agriculture traders as a whole, more probably for grain traders than for energy and metals. We are in a very dull market. The time of expansion is more limited,” Philippe Chalmin, a professor of economic history at University Paris-Dauphine, told Bloomberg.

The shrinking profits have prompted a slew of big shakeups outside of personnel as well, with Bunge – for example – launching a US$250M savings programme in July and Louis Dreyfus and Cargill selling assets due to a “challenging” market, despite both companies reporting increased profits in September.

But whereas the big players are shrinking, smaller companies could reap the benefits by vacuuming up the traders trickling out of the ABCD firms.

Connecticut, USA-based commodity trader Freepoint Commodities had expanded by hiring agri traders from bigger rivals, while Ukrainian Kernel Holding reportedly hired a team of traders leaving Engelhart Commodities Trading Partners to start international trading desks focused on oilseeds, Bloomberg said.


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