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Easy as ABCD?

Potential change among the quartet sitting atop the global agriculture industry will shape opportunities for private investors downstream. The drivers of that change reflect challenges shared by all in the sector.

On what would be his last quarterly earnings call as Bunge’s chief executive in late October, Soren Schroder attempted to balance positivity about progress in the company’s strategic review with recognition of the challenges posed by recent trade disruptions.

As analysts attempted to harmonize Bunge’s most recent projections with numbers it had previously released, Schroder acknowledged the company has been challenged by changes to trade flows that have upset the natural rhythms of market demand for storage and transportation.

Amid a global trade described as highly influenced by politics in an industry that has generally become more competitive, Schroder said US farmers are currently reluctant to sell corn or soybeans while the incentives for their Brazilian counterparts to do so are reduced by a strong currency and weak futures prices. He repeated his expectation that trade tensions between China and the US would be relatively short-term, but was neutral on the question of whether a resolution would be a positive or negative for the company.

It was only after more detailed questions regarding the nuances of Chinese soymeal demand and possibility of stock buybacks that an analyst finally brought the call’s focus to the elephant in the room.

“You threw in a comment, to be honest with you, at the very end of your script about a strategic, some strategic actions, and of course, there is a new board of directors, but it was too brief for me,” complained David Driscol of Citi Research. “Is the company for sale or are you just looking to sell certain assets? This seems really important, Soren, could you just elaborate a little bit?”

Schroder responded that, while he remained convinced the company had done many of the right things under his leadership, he was reluctant to put a timeline on the strategic review process or narrow in any way the range of possibilities for its conclusions.

In early December, Bunge revealed what was likely one of the strategic review’s conclusions – Schroder would be leaving.

The fact that no immediate successor was named has been widely interpreted as suggesting the company is now open to discussions about a possible takeover, including by rival ADM or Glencore Agriculture, both of which were reported to have previously discussed a possible deal for Bunge.

For private agriculture investors, ultimate resolution of the strategic review at Bunge will shape the nature of market opportunities in several ways. Some investors have used board seats and direct participation in the strategic review to position themselves for asset sales or future partnerships. Others are more likely to feel the effects only indirectly through markets opened to competition after rationalizations or executives searching for new opportunities.

The four “ABCD” companies that guide the commanding heights of the global ag industry established their positions over decades and each is currently in the process of adapting its business model to the modern era. If institutionally backed Glencore emerges as a successful suitor for Bunge, it will mark an important milestone in the interaction between institutional investors and agriculture over the past 10 years.

Just as Bunge’s status as a public company – subject to the pressures of eagle-eyed analysts and a jittery stock market – had helped determine its course, an increased role for Glencore and its institutional backers within the global ag market would introduce a different set of uncertainties for those attempting to plan around the sector’s giants.

Attempts to build scale in agriculture in the decades ahead will inevitably come up against the need for a trade system capable of reaching disparate markets and servicing trade in ag commodities with uniquely direct connections to social stability. Regardless of whether the capital comes directly from pensions, through funds or public markets, any such attempt will be forced to reckon with the realities Schroder enumerated on October’s call.

Nobody said it’d be as easy as ABCD.

Write to the author at chris.j@peimedia.com