A worker inspects wheat grain at a grain storage facility, operated by Bunge Ltd., at Nikolaev port in Nikolaev, Ukraine, on Wednesday, Aug. 31, 2016. Ukraine's government is struggling to unlock a $17.5 billion international bailout from the International Monetary Fund after delays in passing a series of reforms to boost transparency and improve the court system. Photographer: Vincent Mundy/Bloomberg
A worker inspects wheat grain at a storage facility operated by Bunge in Ukraine © Bloomberg

Bunge, the grain trading house, has detailed plans to slash $450m in costs and capital spending as it deals with weakening profit margins and a possible takeover bid from commodities titan Glencore.

The New York-listed company, the world’s biggest oilseed processor and a leading merchant of corn, soyabeans and wheat, issued a second-quarter profit warning late on Wednesday, citing “unprecedented” crop hoarding by South American farmers.

Grain middlemen have struggled as bumper harvests depress prices, leaving farmers reluctant to sell and customers wary of paying a premium for advance supplies.

Most of Bunge’s revenue and profit come from its agribusiness division, which buys wholesale grains and oilseeds and stores, ships and sells them around the world.

“We concluded at the end of last year that we had to think bigger and bolder,” Soren Schroder, Bunge chief executive, said on a conference call on Thursday. “We are now ready to implement significant changes . . . There is nothing in this process which is off limits.”

Mr Schroder made no mention of discussions with Glencore. He reiterated earlier statements that the grain industry needed consolidation in some locations, such as the US, and that Bunge sought to pursue regional alliances with partners. “We are very open to that. We would like to lead it where possible,” he told analysts.

Glencore Agriculture in May said it had approached Bunge about a business combination, drawing a cool response. Glencore, the Swiss-based mining-to-oil commodities company, is seeking to expand in agriculture through its joint venture with two Canadian pension funds.

For Glencore and its partners, a deal with Bunge is attractive for strategic reasons but also because of the opportunity to cut costs.

Bunge has $1.35bn in annual selling, general and administrative expenses. It aims to reduce these by $250m by the end of 2019 by adopting initiatives such as “zero-based budgeting,” improving procurement functions, sharing technology, moving to lower-cost locations and automating business processes, it said.

The company also outlined $650m in capital spending for 2018, down from $850m originally planned for this year.

Bunge shares were up 1.1 per cent to $79.59 at lunchtime in New York on Thursday.

Robert Moskow, analyst at Credit Suisse, expressed dissatisfaction with the cost-cutting measures. “We think investors will find this initiative insufficient if it is meant as a defence plan to fend off Glencore’s interest in the company or if it signals a sudden lack of interest on Glencore’s part,” he wrote.

Bunge’s profit warning comes even as global food consumption continues to rise, undergirded by population growth and incomes in emerging economies. But trading houses have been squeezed as harvests more than keep up with demand.

CHS, a US-based grain trader cooperatively owned by farmers, last week reported a net loss.

And Cargill, the world’s largest agricultural trading house, streamlined management, reduced costs, paid down debt and divested businesses as its profits flagged. Its results have improved, but challenges remain.

“Unless there is some weather event, the market is going to be pretty well supplied. That makes it harder for people like ourselves,” Marcel Smits, Cargill’s chief financial officer, said last week.

Mr Schroder said he believed agricultural commodity conditions were close to hitting bottom, citing recent moves in grain prices as a drought threatens crop yields in parts of the US corn belt.

“You’re already seeing how small changes even in the US crops are creating fairly dynamic markets and creating opportunities. We are at the worst moment, or we’re very close to it anyway,” he said.

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