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Good 'free trade' times for international grain companies

(Friday, July 18, 2003 -- CropChoice news) -- The following stories and commentaries speak volumes on the actions of transnational grain trading corporations and perhaps the repercussions of the "free trade" policies the U.S. government has followed since the 1985 farm bill.

  • ADM, Cargill, Bunge, Louis Dreyfus dominate as Latin American grain traders

    via The Agribusiness Examiner: DARYLL E. RAY, DIRECTOR, UNIVERSITY OF TENNESSEE'S AGRICULTURAL POLICY CENTER: In late June, 2003, Archer Daniels Midland Company (ADM) announced that it had "begun construction on five grain origination and storage silos in Brazil." Four of these facilities are located in the state of Matto Grosso, where soybean production has been growing by leaps and bounds for the last two decades. The other facility is located in Matto Grosso do Sul, Brazil's traditional soybean growing area.

    These new facilities will be incorporated into a network of 80 silos that ADM already operates in Brazil, Paraguay, and Bolivia. In the press release ADM says it "remains committed to grow with its customers and their needs." As Paul B. Muhollem, President and Chief Operating Officer of ADM, said, "ADM's Brazilian country elevator system is an integral part of our global processing network, delivering crops from the expanding production areas to our processing plants in Brazil, Europe and Asia."

    One of our Ag Economics graduate students here at the University of Tennessee, Alejandro Dellachiesa, recently made a presentation in which he identified the major agricultural exporters in his home country, Argentina. In 2002, ADM Argentina handled 11% of Argentina's wheat exports, 9% of the corn exports and 17% of the grain sorghum exports. On its website, ADM notes that its merchandising network is enhanced by its partnership with leading North American and European agricultural cooperatives in A. C. Toepfer International. Toepfer handles 20% of Argentina's wheat exports and 15% of the corn exports.

    The other major grain and oilseed exporters in Argentina are Cargill, Bunge and Dreyfus. Together these five companies account for the following percentages of Argentina's exports: wheat: 78%; corn: 79%; grain sorghum: 17%; soymeal: 71%; soyoil: 95%; and sunflowers: 99%. If one looks elsewhere in South America, or the rest of the world for that matter, I suspect that a very similar pattern will emerge. It appears that the bulk of world trade in major grains and oilseeds is handled by a handful of companies.

    This information leads to a question which our center has been struggling with for a couple of years. In addition to economics, to what extent is the nature of world grain trade determined by the national policies of the various countries and to what extent are short-term trading events determined by the major trading firms?

    When country X calls for bids on a shipload soybeans it wants to buy, is it American farmers competing with Argentinean farmers? Not really. For the most part, individual American and Argentinean farmers are not directly involved in the international grain trade. The international trade in soybeans, for instance, is handled by ADM-USA, ADM Argentina and the other international grain traders, most of whom have facilities in all of the major exporting countries.

    Historically, national policy has been seen as a major factor in the international trade of grains and oilseeds. As the international trade of these commodities is consolidated into fewer and fewer hands, one begins to wonder about the extent of influence of private policy on trade patterns and on issues in the current trade negotiations.

    Daryll E. Ray holds the Blasingame Chair of Excellence in Agricultural Policy, Institute of Agriculture, University of Tennessee, and is the Director of UT's Agricultural Policy Analysis Center

  • ADM shuts Kansas City soy processor

    CHICAGO, July 16 (Reuters) - Archer Daniels Midland Co. , the top U.S. soybean processor, said on Wednesday it was closing indefinitely its soybean processing facility in North Kansas City, Missouri, from July 21 this year.

    The Decatur, Illinois-based company said in a statement that the closure was due to current poor soybean crushing margins. It was the ninth North American oilseed plant closed by the company in the past three years.

    A company spokesman said 72 jobs would be affected, but added that the cost of the plant closure was still not known.

    Increased foreign competition and reduced U.S. livestock production have limited the profitability of domestic soymeal, a prime livestock feed.

    In response, processors are moving soymeal production capacity to South America to take advantage of cheaper and more abundant soybean supplies.

    They have also been shifting operations to China, the world's top soybean importer, to maximize their exposure to the huge Chinese market that is growing rapidly.

    U.S. crush margins were hit by drought, reducing last year's crop and raising prices to multiyear highs. This year's crop, however, seems to be on track for a bountiful harvest.

    CropChoice editor's note: The following story illustrates how Bunge benefits from low grain prices.

  • Bunge's shares surge after company again raises profit targets

    Bakingbusiness.com, 07/15/03: WHITE PLAINS, N.Y. -- Shares of Bunge Ltd. gained as much as 4% in early trade Tuesday after the oilseed processing giant raised its second-quarter and full-year earnings projections for the second time in two-and-a-half months.

    Bunge's shares rallied as much as $1.14 to $30.09 after the company said its net income for the quarter ended June 30 should total $178 million to $183 million, or $1.79 to $1.84 per share. The company previously expected to earn $1.67 to $1.72 per share in the quarter, results from which will include a one-time gain of $111 million, or $1.11 per share, from the company's sale of its Brazilian ingredients operation to the Solae Co., its new joint venture with DuPont.

    In the same quarter last year, Bunge earned $50 million, or 50c per share.

    The company said it would earn $90 million to $95 million, or 90c to 95c per share, in the current third quarter, and it increased its full-year profit target to $380 million to $390 million, or $3.81 to $3.91 per share, from $3.73 to $3.83 per share previously.

    Bill Wells, Bunge's chief financial officer, cited strong company-wide performances in the second quarter for the new projections, including strength in the company's South American fertilizer and global food products businesses. That strength, he said, helped offset ongoing weakness in the North American oilseed processing market, rising energy costs and the negative currency impacts of rising Brazilian real and Argentine peso values versus the U.S. dollar.

    Bunge previously had raised its second-quarter and full-year earnings guidance in early May. The company plans to release its second-quarter results July 29.