Crop trader Bunge open to leading industry consolidation as profits slide

Bunge, one of the world’s leading grain traders, has opened the door to a large-scale merger in its sector after acknowledging a “structural” shift in agricultural commodities markets threatened to persistently depress profit margins.
The New York-listed company, with silos, ports and grain mills in 40 countries, said it was more than willing to participate in mergers and acquisitions in the grain-handling industry, which it dominates with other global companies such as Archer Daniels Midland, Cargill and Louis Dreyfus Commodities.

“There’s plenty of room to consolidate, and we are happy to participate,” or possibly
“lead it,” Soren Schroder, chief executive, told analysts.

Mr Schroder said consolidation among grain handlers or distributors was “becoming more obvious.”

He added: “We’re certainly open to look at anything that creates value for shareholders and makes us more efficient, so there’s no argument against that.”

Bunge has focused on smaller “bolt-on” acquisitions in its food and ingredient business and formed partnerships with other companies in its bulk grain and oilseeds businesses*.

Bunge and other trading houses have suffered the consequences of several years of bumper corn, wheat and soyabean crops. As crop prices skidded lower, farmers have been unwilling sellers, forcing traders to pay more.

The food companies and government agencies that are traders and processors’ customers have been reluctant to buy far in advance, secure in the assumption that supplies will be plentiful.

The result was on display Wednesday as Bunge reported net profit in the first quarter of $47m, or 35 cents a share, down from $235m or $1.41 a share a year earlier. Analysts had expected earnings of 71 cents per share.

Bunge rival ADM on Tuesday reported similarly disappointing results, and lowered its long-term target for investor returns.

Shares of Bunge fell 9.3 per cent to $68.55 early in New York.

*This post has been amended to clarify Bunge’s M&A and partnership strategy.