TROUBLE IS BREWING in America. The reopening economy’s hunger for goods from China, and for the containers that carry them, has left importers of coffee, of which the average American guzzles two cups a day, struggling to ship the stuff from Brazil. They are using whatever they can get, says Janine Mansour of Port of New Orleans, where much of America’s raw coffee lands. That includes much bigger boxes, which reach maximum allowed weight before they are full. Importing part-empty containers adds extra costs, Ms Mansour says, and these will ultimately be swallowed by consumers.

It isn’t just coffee prices in America that are rising. Transport logjams and paltry harvests in producing regions have conspired with surging demand to stoke food inflation across the smorgasbord. The UN Food and Agriculture Organisation (FAO) expects the value of global food imports to reach nearly $1.9trn this year, up from $1.6trn in 2019 (see chart). In May its index of main soft commodities hit its highest value since 2011, after rising for 12 straight months. Another benchmark index, by S&P Global, a research firm, has risen by 40% since July 2020. On July 22nd the boss of Unilever, the Anglo-Dutch maker of everything from Ben & Jerry’s ice cream to Hellmann’s mayonnaise, said that pricier raw materials have caused his firm’s costs to swell at their fastest pace in a decade.

Central bankers warn that the price spikes could feed broader inflation, which is already on the rise in many countries. That would be bad for consumers. But their loss is a gain for the giant firms that source, store and ship foodstuffs on behalf of state buyers and multinational companies. These opaque traders, which possess the networks of silos, railways and vessels, as well as the data and relationships, necessary to redraw supply routes, thrive on volatility. The four biggest—ADM, Bunge, Cargill and Louis Dreyfus, collectively known as the ABCDs—have been adding to their total workforce of 240,000 and ploughing billions of dollars into new businesses that rely less on cycles of feast and famine. Their prospects offer a foretaste of global food markets in decades to come.

The ABCDs have been matching buyers and sellers of foodstuffs for more than a century. The youngest of the four, ADM, was founded in 1902. The oldest, Bunge, dates back 84 years before that. In the decades to the early 2010s they thrived on the back of population growth, rising prosperity and accelerating globalisation.

Down on the farm
Then they began to wilt. A prolonged glut of crops kept prices low and stable, squeezing margins. Smartphones and other technology put real-time data on local conditions and global prices at farmers’ fingertips, reducing the middlemen’s market power. Producers bought storage to ride out price swings, which decreased arbitrage opportunities. Challengers emerged, including Viterra, the agricultural arm of Glencore, a large commodity-trader-turned-miner, and COFCO International (CIL), the overseas trading arm of China’s state-owned food giant. Between 2013 and 2016 the ABCDs’ combined sales plummeted from $351bn to $250bn.

The revenues have stayed flat since. But last year was nevertheless a bumper one for the ABCDs, whose combined net profits doubled, to $4.5bn. Analysts expect ADM and Bunge, which are publicly traded and report second-quarter results this week, to do even better in 2021. All four benefit from abruptly changing patterns of demand for crops and of their supply.

Start with demand. For one thing, the pandemic has altered diets. When covid-19 began to spread in early 2020, lockdowns and crimped incomes meant that people stopped eating out and started cooking at home. Meat, fish and dairy (for all those lattes) gave way to more vegetables and cheaper packaged foods. As restaurants, canteens and cafés reopen, and wages rise thanks to the economic rebound, the reverse is happening. “A year ago we were trying to get rid of milk,” says Alain Goubau, a farmer in Ontario. “Now we are adding as many cows as we can.” China has been rebuilding its vast hog herd, which an epidemic of swine flu in 2018 had halved in size.

This has had a multiplier effect on demand for crops, since more grain is needed to produce an animal calorie than if the plant were consumed directly, says Sebastian Popik of Aqua Capital, an agribusiness buyout firm in Brazil. Alfonso Romero of CIL expects China to buy a record 30m tonnes of corn (maize), one of the world’s most-traded crops, this year, in large part to feed all its new pigs. That is up from 11m tonnes in 2020, which was itself an all-time high.

Another boost to demand comes from high oil prices, which make energy crops look like an attractive alternative. The more crops are turned into fuel, the less is left in the food system. The volume of American soyabean oil used to produce energy could rise by 39% between 2020 and 2022, according to the US Department of Agriculture (USDA). Brazil’s production of ethanol from corn shot up by more than half last year and is forecast to increase by another quarter in 2021.

Even as demand for crops has surged, a confluence of factors has conspired to squeeze global supply. Droughts in North and South America have curtailed output. Brazil’s winter-wheat harvest is down by a fifth—and that fifth was meant for export. Besides the container shortage that affects specialty crops such as coffee, the grounding of commercial flights is stranding fresh fruit and vegetables. Rising bulk-shipping rates, up by 150% this year, are adding to the squeeze. Part of that is the result of rising oil prices, which also increase the cost of petroleum-derived fertiliser and other chemicals, and of running farm equipment (which is itself more expensive to buy as farmers take advantage of high crop prices and cheap credit to invest in new tractors and other kit).

This cocktail of forces is buoying global wholesale prices. Soyabeans and corn are, respectively, 56% and 68% more expensive than a year ago. This has filtered through to consumer prices: the cost of a home-grilled cheeseburger is up by 11 cents from 2019, says the USDA. The uncertainty and shrinking stockpiles are creating volatility. IFPRI, a think-tank in Washington, DC, has had corn on high “excess price variability” alert for nearly four months. Wheat and coffee prices have been volatile, too.

Big traders are enjoying the ride. Higher prices give the ABCDs more margin to play with. Bigger volumes, as farmers sell more to lock in the high rates, let them recoup fixed costs more quickly. And more volatility makes it possible to exploit price discrepancies across time and space. Despite a recent dip, the share prices of ADM and Bunge are still up by a third since 2019. Rumours of Bunge’s takeover by rivals, which swirled in 2018 as it embarked on a painful restructuring, have quietened. Dreyfus, the most troubled of the four, has been steadied by market conditions (and a cash injection by Abu Dhabi’s sovereign-wealth fund, which bought a 45% stake in the family-owned business). Cargill has not reported its annual profit for last year but was headed for record earnings after the first three quarters of 2020.

In the short run conditions for the traders look clement. Demand is likely to stay strong. Analysis by Josef Schmidhuber and Bing Qiao of the FAO suggests global agricultural trade volumes will grow by double digits every quarter in 2021. Although prices have softened a bit in the past two months, thanks to better-than-expected planting forecasts in big regions and the near-completion of China’s hog splurge, they are much higher than before the pandemic.

They will probably stay that way until at least next year, reckons Carlos Mera of Rabobank, a Dutch lender. Mr Popik says that the food businesses in Aqua Capital’s portfolio, which export to 45 countries, must now finance two months of stock instead of the usual one. This implies that it will take time to iron out supply-chain wrinkles. And meteorologists place a high probability on another La Niña—a weather event of the sort that caused droughts in late 2020 and early 2021—before the end the year.

Crop rotation
To deal with their longer-term structural challenges, the ABCDs are diversifying. All of ADM’s recent capital spending has gone into less cyclical and more lucrative businesses such as flavouring, colouring and other ingredients for fast food, fizzy drinks or vitamin supplements, says Seth Goldstein of Morningstar, a research firm. In the first quarter of this year its nutrition-ingredients units generated $154m in operating profit on revenues of $1.6bn. That is about 8% of its total, and growing fast. ADM expects this business to expand twice as fast as its core business, which tends to track global GDP.

Bunge has sold dozens of mills, elevators and other assets to invest in plant-protein and edible-oil factories. Cargill now derives most of its profits from animal feed and animal protein. Its food-production facilities include a fish farm in Norway, a poultry farm in the Philippines and cultured-protein factories in America and Israel. It has become one of America’s largest meat processors, as well as a big investor in venture-capital funds focused on food and life sciences. Dreyfus has invested in Leong Hup International, one of South-East Asia’s biggest integrated producers of poultry, eggs and livestock feed.

As the traders become ever larger producers of foodstuffs and consumers of crops in their own right, they may come to prize stability a bit more. But probably not too much. They are not about to stop trading. As the populations of Asia and Africa grow bigger and richer, the middlemen will be called upon to supply them with crops from surplus countries, says Jos Boeren, a former Bunge executive now at Stafford Capital, an investment firm. The policies of big hoarders such as China, India and Russia look ever more unpredictable and their stocks less transparent. Climate change will ensure mismatches between supply and demand of foodstuffs. With six centuries of experience between them, the ABCDs will be evening out soft-commodity cycles well into the future.

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