(Reuters) - Earlier this month, executives at Hong Kong-based commodity trader Noble Group (NOBG.SI) talked with a Kansas agricultural economist about their ambitions to join the biggest wave of industry consolidation in more than a decade.
The executives, who had already decided not to pursue a bid for major U.S. grain trader Gavilon, said they were "thinking about where (they) fit and what's a good investment," said Jay O'Neil, an agricultural economist for Kansas State University's International Grains Program who also does consulting work.
The conversation with O'Neil, who declined to provide more details, is a reminder that the biggest losers in Japanese trading house Marubeni's $5.6 billion deal to buy Gavilon may not be the quartet of huge Western traders who have long dominated the global grain markets, such as Cargill.
Instead, it is the Asian trading houses like Noble and Olam International (OLAM.SI) who do not own assets such as grain elevators in North America that will come under even greater pressure to establish a foothold in the world's biggest supplier, ensuring reliable access to crops needed to meet rising Chinese demand.
For companies like Noble and Olam, the deal "gives them one less entity to buy from," said O'Neil, who recalled the private meeting with Noble took place about three weeks ago. They will still be able to buy grain from other companies, he said.
Industry sources had identified Noble as a potential bidder for Gavilon before Marubeni became the lead contender. But after Marubeni's deal and Glencore's $6 billion purchase of Canada's leading handler Viterra, many are wary of wading too deeply into the fray.
"The comment I heard from some of their management was we don't want to buy something just to buy something. We have to buy something that is a strategic fit and has a potential to make a profit," O'Neil said. A spokesman for the Noble company declined to comment.
SUPPLY ANXIETY
The deal was the latest sign of growing competitive pressure and supply anxiety in the global grain market, where increased demand from China has helped push up prices.
China is the world's top importer of soybeans, buying some 60 percent of the soybeans traded globally, and projected to become the world's fourth largest corn importer next season.
Its demand for crops has soared as the government, worried about food security, has worked to build up reserve supplies.
Asian grain houses without physical assets in North America lost another potential partner in deals to feed China earlier this month when CHS Inc, the biggest farm cooperative in the United States, launched a joint venture with Japanese cooperative Zen-Noh.
The transactions have reignited talk that privately held Louis Dreyfus may be the next company to strike a deal or be sold, traders said.
EXPORT SQUEEZE
Marubeni's purchase of Gavilon squeezes its Asian rivals because Gavilon controls the third-largest network of grain elevators and infrastructure in the United States and is expected to funnel much of its grain to its new owner.
Traditional grain companies known as the ABCDs--Archer Daniels Midland, Bunge, Cargill and Louis Dreyfus--still face an increased threat, however, as the deal marries Marubeni's powerful global trading desk with a new ability to source corn and soybeans from the Midwest, where the heart of Gavilon's storage network lies.
In the United States, the Japanese trading house had formerly focused on shipping wheat out of a Portland, Oregon, export elevator owned by subsidiary Columbia Grain.
Marubeni and Gavilon exported a combined 9.4 million metric tons (10.362 million tons) of corn, soybeans and wheat in 2011, of which only about 1.2 million metric tons was from Gavilon, according to Bill of Lading data aggregated by from PIERS.
By comparison, ADM exported 13.2 million metric tons and Cargill exported some 15 million metric tons, according to a Reuters analysis of the data.
"You've got a company, Marubeni, that's got excellent access into the Asian demand side, including China, and you've got the origination capacity of Gavilon," said Gary Blumenthal, president and CEO of World Perspectives Inc.
"You put the two together and it makes the system work more efficiently." Gavilon has previously exported grain by loading it at elevators owned by other companies like ADM and Cargill, depending on who offered the best pricing, traders said.
U.S. cash grain traders said they did not expect the sale to affect their operations much as the market will dictate whether Marubeni sells grain from its newly acquired elevators on the open market or exports the grain itself.
Still, the ability to promise and deliver vast quantities of grain in a single deal will be a selling point for China, which tends to book massive purchases when prices are favorable.
"The focus of all firms today is: how do we maintain our supplies in a potential supply-shortage world?" said Ray Goldberg, Harvard Business School professor emeritus of agriculture and business.
Gavilon and ADM declined to comment. Cargill and Bunge did not respond to a request for comment.
A FEW PIECES SHORT
Marubeni remains a few pieces short of the status of an ADM or a Cargill, two companies that own assets throughout the grain supply chain, from storage to shipping to processing.
Aside from a seasonal export terminal on the Great Lakes and a joint venture share of an export terminal in Washington, Gavilon's assets are primarily domestic market assets so Marubeni will still need to rely on making "paper" trades and rely on other grain companies to load ocean-going vessels.
Gavilon struck a deal with ADM and a unit of Japanese trader Mitsubishi Corp in 1998 to form Kalama Export Company, a grain handling facility in Washington state.
"They all want multiple locations, multiple sources of supply so that they have the ability to adjust to the supply requirements of their customers," Goldberg said.
reuters.com
The executives, who had already decided not to pursue a bid for major U.S. grain trader Gavilon, said they were "thinking about where (they) fit and what's a good investment," said Jay O'Neil, an agricultural economist for Kansas State University's International Grains Program who also does consulting work.
The conversation with O'Neil, who declined to provide more details, is a reminder that the biggest losers in Japanese trading house Marubeni's $5.6 billion deal to buy Gavilon may not be the quartet of huge Western traders who have long dominated the global grain markets, such as Cargill.
Instead, it is the Asian trading houses like Noble and Olam International (OLAM.SI) who do not own assets such as grain elevators in North America that will come under even greater pressure to establish a foothold in the world's biggest supplier, ensuring reliable access to crops needed to meet rising Chinese demand.
For companies like Noble and Olam, the deal "gives them one less entity to buy from," said O'Neil, who recalled the private meeting with Noble took place about three weeks ago. They will still be able to buy grain from other companies, he said.
Industry sources had identified Noble as a potential bidder for Gavilon before Marubeni became the lead contender. But after Marubeni's deal and Glencore's $6 billion purchase of Canada's leading handler Viterra, many are wary of wading too deeply into the fray.
"The comment I heard from some of their management was we don't want to buy something just to buy something. We have to buy something that is a strategic fit and has a potential to make a profit," O'Neil said. A spokesman for the Noble company declined to comment.
SUPPLY ANXIETY
The deal was the latest sign of growing competitive pressure and supply anxiety in the global grain market, where increased demand from China has helped push up prices.
China is the world's top importer of soybeans, buying some 60 percent of the soybeans traded globally, and projected to become the world's fourth largest corn importer next season.
Its demand for crops has soared as the government, worried about food security, has worked to build up reserve supplies.
Asian grain houses without physical assets in North America lost another potential partner in deals to feed China earlier this month when CHS Inc, the biggest farm cooperative in the United States, launched a joint venture with Japanese cooperative Zen-Noh.
The transactions have reignited talk that privately held Louis Dreyfus may be the next company to strike a deal or be sold, traders said.
EXPORT SQUEEZE
Marubeni's purchase of Gavilon squeezes its Asian rivals because Gavilon controls the third-largest network of grain elevators and infrastructure in the United States and is expected to funnel much of its grain to its new owner.
Traditional grain companies known as the ABCDs--Archer Daniels Midland, Bunge, Cargill and Louis Dreyfus--still face an increased threat, however, as the deal marries Marubeni's powerful global trading desk with a new ability to source corn and soybeans from the Midwest, where the heart of Gavilon's storage network lies.
In the United States, the Japanese trading house had formerly focused on shipping wheat out of a Portland, Oregon, export elevator owned by subsidiary Columbia Grain.
Marubeni and Gavilon exported a combined 9.4 million metric tons (10.362 million tons) of corn, soybeans and wheat in 2011, of which only about 1.2 million metric tons was from Gavilon, according to Bill of Lading data aggregated by from PIERS.
By comparison, ADM exported 13.2 million metric tons and Cargill exported some 15 million metric tons, according to a Reuters analysis of the data.
"You've got a company, Marubeni, that's got excellent access into the Asian demand side, including China, and you've got the origination capacity of Gavilon," said Gary Blumenthal, president and CEO of World Perspectives Inc.
"You put the two together and it makes the system work more efficiently." Gavilon has previously exported grain by loading it at elevators owned by other companies like ADM and Cargill, depending on who offered the best pricing, traders said.
U.S. cash grain traders said they did not expect the sale to affect their operations much as the market will dictate whether Marubeni sells grain from its newly acquired elevators on the open market or exports the grain itself.
Still, the ability to promise and deliver vast quantities of grain in a single deal will be a selling point for China, which tends to book massive purchases when prices are favorable.
"The focus of all firms today is: how do we maintain our supplies in a potential supply-shortage world?" said Ray Goldberg, Harvard Business School professor emeritus of agriculture and business.
Gavilon and ADM declined to comment. Cargill and Bunge did not respond to a request for comment.
A FEW PIECES SHORT
Marubeni remains a few pieces short of the status of an ADM or a Cargill, two companies that own assets throughout the grain supply chain, from storage to shipping to processing.
Aside from a seasonal export terminal on the Great Lakes and a joint venture share of an export terminal in Washington, Gavilon's assets are primarily domestic market assets so Marubeni will still need to rely on making "paper" trades and rely on other grain companies to load ocean-going vessels.
Gavilon struck a deal with ADM and a unit of Japanese trader Mitsubishi Corp in 1998 to form Kalama Export Company, a grain handling facility in Washington state.
"They all want multiple locations, multiple sources of supply so that they have the ability to adjust to the supply requirements of their customers," Goldberg said.
reuters.com
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