Lower than three years in the past, the world’s largest agribusinesses have been using their newest excessive as they cashed in on market chaos after Russia’s assault on Ukraine upended the worldwide meals provide chain and despatched grain and oilseed costs hovering.
Now the “ABCD” giants — Archer Daniels Midland, Bunge, Cargill and Louis Dreyfus — have fallen on more durable occasions, underlining their wrestle to diversify as they search to interrupt free from the sector’s cycle of booms and slumps tied to international commodity costs.
ADM and Bunge, the 2 listed members of the group, final month reported plunges of their annual earnings, down 48 per cent and 49 per cent respectively in 2024 — and the ache is way from over with each anticipating even steeper slides this 12 months.
The 4 corporations have lengthy been the sector’s uncontested leaders, producing a whole bunch of billions of {dollars} in revenues by their grip on the commerce and processing of agricultural uncooked components, significantly grain and oilseeds. However they function on razor-thin margins, with earnings surging as costs swing throughout market volatility and struggling in calmer occasions when arbitrage alternatives shrink.
The most recent downturn got here regardless of strategic adjustments geared toward making the quartet “much less uncovered to outright crop costs”, mentioned Kona Haque, head of analysis at commodity dealer ED&F Man.
The ABCD “are superb at buying and selling as a result of that’s what of their DNA however they might not be pretty much as good at different components of the provision chain”, she added. “Are they good farmers? Are they good retailers? Are they good mill house owners? Or are they simply good merchants and shippers?”
Jean-François Lambert, founding associate of consultancy Lambert Commodities, mentioned the ABCD had “morphed into agroindustrial gamers slightly than pure merchants . . . the one exception is Dreyfus”.
Louis Dreyfus undertook a serious restructuring after heavy losses within the 2000s, divesting non-core, lossmaking belongings and doubling down on its core strengths — commodities buying and selling and transport.
Whereas the corporate reveals even lower than its listed rivals, it has not been proof against the sector’s woes, saying in its most up-to-date outcomes disclosure in September that earnings within the first half of 2024 have been down 14 per cent on a 12 months earlier. The corporate declined to remark to the FT.
ADM and Bunge attributed gloomy revenue forecasts final month partially to geopolitical uncertainty — one thing the trade has historically thrived upon — together with the potential influence of US President Donald Trump’s commerce insurance policies.
“The pure merchants can take benefit extra simply of volatility than the agroindustrial gamers,” mentioned Lambert. “The agro-industrial gamers are caught; they’ve a long-term technique they usually’re a lot much less nimble.”
Hartwig Fuchs, an ADM shareholder who previously chaired a German commodity dealer that the group acquired in 2014, famous that its shares have been no larger than 10 years in the past when Juan Luciano grew to become chief govt, regardless of billions of {dollars} poured into the lower-volume however higher-margin diet enterprise.
“I’m a small shareholder however I merely assume that’s completely, completely unacceptable,” he mentioned. “These buggers get tens of tens of millions of {dollars} yearly to ship what? Zero.”
ADM can also be going through a regulatory probe into its accounting practices after an inner investigation discovered historic earnings in its diet enterprise had been overstated.
The corporate’s push to diversify has come amid shareholder strain for extra steady, predictable development, say analysts. Luciano has centered on constructing the diet enterprise, beginning with the acquisition of Wild Flavors for $2.9bn in 2014 when he was chief working officer.
On changing into chief govt the next 12 months he set bold targets, aiming for 15-20 per cent of ADM’s income to come back from value-added companies by 2020. However regardless of billions spent on acquisitions, the diet enterprise has struggled to satisfy expectations and nonetheless makes up lower than 10 per cent of group gross sales.
“ADM at all times was in a position to make some huge cash at processing and commodities, they usually’re actually good at it,” mentioned Fuchs. “Now, why do I as a shareholder have to simply accept that you just spend $3bn for a enterprise that you just don’t know?”
Bunge has sought to scale back its reliance on commodity volatility by its $8.2bn merger with Glencore-backed Viterra. The deal, which can mix the world’s high oilseed processor with a number one grain dealer, stands to create a $25bn group able to competing with ADM and Cargill.
“Whereas we didn’t finish 2024 as we anticipated and our ahead visibility is proscribed, we’re assured that the steps we’ve got taken will enable us to proceed to create worth for all stakeholders,” the corporate instructed the FT.
It added that “with a diversified international mixture of earnings throughout processing, dealing with and merchandising, and value-added merchandise, we’ll improve the resiliency of our money circulation technology”.
Cargill, the world’s largest agricultural commodities dealer, can also be struggling. The privately held group mentioned in December it could reduce 5 per cent of its 164,000-strong workforce whereas streamlining its operations from 5 enterprise divisions to a few because it reported a ten per cent drop in revenues to $160bn for the fiscal 12 months ending Could 2024.
“Cargill’s resolution to diversify was pushed by the identical pressures going through ADM,” mentioned Seth Goldstein, analyst at Morningstar. “The necessity for extra predictable, steady earnings in a much less unstable atmosphere.”
Like ADM, Cargill expanded into diet however its boldest transfer was into meat processing. Its meat packing operations helped boost earnings and set it other than its high rivals however the meat sector, like grain buying and selling, is cyclical.
Cargill’s future lies in additional value-added downstream growth, in keeping with Florian Schattenmann, the Minnesota-based firm’s director of analysis and growth. “When you will have a portfolio, one half . . . is perhaps up, one other down, in order that stabilises issues,” he mentioned, including that the corporate was diversifying into merchandise comparable to plant-based protein “with very clear traits in thoughts: well being, diet, sustainability, meals safety.”
Schattenmann mentioned the group was being cautious, with many initiatives, comparable to lab-grown meat, developed in partnership with start-ups and prospects.
“Cargill is 160 years outdated—we all know our markets and put money into that atmosphere with shut collaboration with prospects,” he mentioned, with corporations that did this sometimes outperforming “when it comes to whole shareholder returns”.
“If we did our work proper,” he added, the brand new companies “ought to create some extra worth, which usually results in hopefully larger margins” — echoing feedback in September from ADM’s Luciano that he had “not personally misplaced my aspirations” for the diet enterprise.
Many observers, nevertheless, stay sceptical.
“Until considered one of these companies makes a transformational acquisition, within the type of a merger with a bigger components enterprise or somebody exterior of the agri enterprise,” mentioned Goldstein, “they’re prone to stay very unstable and beholden to agricultural circumstances”.
