(The author is a Reuters market analyst. The opinions expressed
are his own. To get his real-time views on the markets, please
enter the Global Ags Forum.)
By Gavin Maguire
CHICAGO, April 4 The largest players in the
global agriculture trading industry are likely to be cut out of
a growing share of world crop trade following the recent move by
China's trading arm COFCO to acquire majority stakes in Nidera
and Noble Group Ltd's agriculture businesses.
By beefing up COFCO's agricultural product origination
capabilities, the Chinese government will be able to cut other
third-party traders out of the lucrative purchasing and
logistics portion of the supply chain. And given that China is
one of the world's largest importers of nearly all grains,
oilseeds and edible oils this development could emerge as a
major threat to the core businesses of the traditional 'Big 4'
giants of agri trading - Archer Daniels Midland Co,
Bunge Ltd and Cargill, and Louis Dreyfus
Commodities, which are collectively known as the
LONG TIME COMING
As China emerged as the dominant trader, consumer and
importer of agricultural staples over the past decade,
expectations have risen among the trading community that the
country would take steps to establish more direct origination
and handling capabilities in the grain and oilseed markets.
China's chief agricultural trading arm COFCO has increased
its scope and capabilities over the past few years in order to
accommodate the steep increases in imported volumes of a slew of
But it has been something of a surprise that it took until
this year for China to make its first official moves to acquire
or partner with major trading houses that specialize in the food
and feed arenas.
Now that it has conducted back-to-back deals to acquire a
majority stake in Netherlands-based Nidera and the agricultural
unit of Singapore-based Noble, however, trader focus is starting
to shift to how this new set-up will impact the global
agri-trading industry going forward.
With Nidera's well-established trading acumen in Europe and
South America, and Noble's extensive port and logistics
infrastructure throughout the Americas, Asia, the Middle East
and Africa, COFCO has made its intentions clear that it will
look to source its crop and food products via a diverse global
And given the scale of China's food and feed requirements,
taking such a broad approach to agri-product sourcing is not
surprising as it lessens dependence on any one supplier country
However, China's resulting improved diversity in the
agriculture import field could prove to be bad news for those
firms who have lately been heavily reliant on China for steady
demand in grains and oilseeds.
And given that each of the ABCD firms have benefited
strongly from China's aggressive demand requirements over the
past decade, each looks set to suffer diminished trading
revenues going forward as China steers more of its purchase
orders through its own businesses.
Not only that, but any downturn in trading activity with
China will also reduce each firm's market intelligence on a
major global player, and thereby inflict an intellectual penalty
that could prove to be more severe than any downturn in trading
REDUCED DEPENDENCE ON THE UNITED STATES
While the U.S. will remain the world's top producer and
exporter of corn and a leading supplier of soybeans, wheat and
other products, China's new trading set-up could mean it depends
less on North American suppliers for those commodities going
Both Nidera and Noble have developed extensive handling and
origination capabilities across South America in recent years,
where vast tonnages of corn, soybeans and other crops are grown
What's more, Chinese authorities have taken steps in recent
years to approve certain seed traits grown in that region that
should foster increased domestic demand South American crops
over the coming years.
Combined, this should set the stage for a steady increase in
the flow of oilseeds and grains from throughout South America
towards China and neighboring countries over the coming years.
And while this does not necessarily mean any downturn in
shipments out of North America - as demand is expected to
continue rising in all regions for the foreseeable future -
China's increased orientation towards South America does
highlight the importance for the major agri-exporters to develop
and expand markets in other regions going forward.
While all the ABCDs have a global footprint in terms of both
origination operations and consumer markets, some appear to be
better placed than others to adopt to any 'post-China'
At first glance, Cargill may appear to be in the strongest
position to offset any reduced demand from China due that
company's enormous scale throughout the world.
But in actuality, Louis Dreyfus may have the broader
footprint in terms of operational exposure, as Cargill's heavy
emphasis on grains and meat production leave it potentially more
vulnerable to any downturn in Chinese protein demand than
Dreyfus, which is also a major player in the citrus arena.
Bunge also looks likely to get hurt by any aggressive switch
in Chinese purchasing patterns due to that firm's dominance in
the soybean arena, and the fact that China is the world's
largest importer and consumer of that oilseed.
And ADM may prove to be impacted worst of all, as despite
efforts last year to broaden its geographic footprint via a
failed bid to acquire Australia's GrainCorp, the
company remains a mainly American concern, with an
especially-heavy presence in the United States.
What's more, of all the ABCDs ADM has the strongest ties to
the corn market, and its share price has shown a clear tendency
to ebb and flow in close correlation with U.S. corn export and
price patterns - climbing during periods of high corn demand and
faltering somewhat during spells of reduced corn consumption and
Despite efforts towards self-sufficiency in grain
production, China was a major corn importer in recent years and
was instrumental in corn's blistering price rise in 2012 as it
ratcheted up imports right in the midst of the U.S. drought.
But now that China has hooked up with two firms with close
ties to crop growers predominantly outside the U.S., it is
likely that any further Chinese corn purchases will be at least
steered through other firms, if not from other locations
This could leave ADM, alongside the rest of the ABCD giants,
under pressure to compete with one another for the crop demand
outside of China over the coming years, which would mark a stark
contrast to the recent period when they all enjoyed a share of
China's impressive agricultural demand.
(Reporting by Gavin Maguire; Editing by Marguerita Choy)