Miller Magazine Issue 109 / January 2019

48 NEWS MILLER / JANUARY 2019 Economist: Trade war has given agricultural merchants a boost For decades ADM, Bunge, Cargill and Louis Drey- fus—the abcds of agribusiness—were unavoidable middlemen. From corn and cocoa to soya and sugar, they could best gauge supply and demand, thanks to superior intelligence on stocks and harvests. Their sto- rage facilities placed them well to ride out price swings. State buyers and multinationals relied on their global footprint to source staples. Their networks of ports, ships and trucks meant they picked up profits all along the way. But five years ago their grip started to loosen. In 2013 the quartet posted $351bn in combined sales, equivalent to over a quarter of the world’s annual fo- od-import bill. By 2017 that had shrunk to $260bn. At most companies profits also crashed, pummelling share prices. And though they together retain 235,000 staff, many traders have left. Stable, low crop prices, induced by a persistent global glut, were squeezing margins. But the disintermediati- on owed more to structural forces. Phone apps could provide farmers with real-time data on prices in all mar- kets. Farms became bigger, and invested in storage. “Today you don’t need all these in-between halfway houses,” says Detlef Schoen, a former head of Cargill’s European grain business. The traders’ decline seemed unstoppable. Until this summer. In June, after President Donald Trump slapped tariffs on $50bn-worth of Chinese go- ods, Beijing retaliated by targeting soyabeans, Ame- rica’s biggest farm export. That hammered American prices; Latin American substitutes soared. Brazilian soya, on par with American soya in May, opened up a wide lead before falling back as Brazil’s export season drew to a close and hopes for a truce in the trade war briefly rose. “THE GOOD TIMES ARE UNLIKELY TO LAST” American farmers were hit hard. But trading beca- me profitable again. All four ABCDs have hinted at strong earnings for the period since June. In their hi- gh-volume, low-margin business, says Vincent And- rews of Morgan Stanley, a bank, agricultural traders shovel “pennies, nickels or dimes”. Until relatively recently, pennies were all they could pick up; now they are earning nickels. Volatility brings opportuni- ties for arbitrage; depressed American prices mean bigger margins on processing soyabeans into animal feed. Dimes may soon be on offer. “America must find new clients, China new suppliers. Traders have a new raison d’être,” says Jean-François Lambert, a consultant. But the good times are unlikely to last. Trade shifts ADM, Bunge, Cargill and Louis Dreyfus-the abcds of agribusiness- have hinted at strong earnings for the period since June. Volatility brings opportunities for arbitrage; depres- sed American prices mean bigger margins on processing soyabeans into animal feed. “But the good times are unlikely to last” the Economist reports.