Three of the four largest global grain companies, also known as the ABCD giants, are in turbulent financial waters. The common denominator is that after a few good years, grain prices are now at a significantly lower level. And that does something to the income of these billion-dollar companies. Major reorganizations and significant price drops are sometimes inevitable.
We have known for a long time that things are more difficult for the two listed companies within the ABCD quartet, which together determine approximately 80% of the global grain trade. The quarterly figures of ADM and Bunge were downright disappointing in the first two quarters of this year. And also significantly lower than in recent years when income rose sharply as a result of high grain prices due to the war in Ukraine. We have also known from Cargill since the beginning of this week that they are having a difficult time. Only with Louis Dreyfus it is still a matter of guessing how things will go after an excellent 2023. We take stock from large to small(er).
| The ABCD Quartet | Turnover in billions (2023) |
| Archer Daniels Midland (ADM) | $93,9 |
| Bunge | $47,7 |
| Cargill | $177 |
| Louis Dreyfus Company | $50,05 |
Reorganization at Cargill
Unlike ADM and Bunge, the private American grain giant does not have to open its books every three months, making the company somewhat more difficult to track. Nevertheless, analysts already suspected that Cargill was also having a more difficult time. And that turns out to be correct. Although results for the 2023/24 financial year have not yet been released, internal documents obtained by Reuters show that its own profit targets have not been achieved. The sweeper must therefore be swept through the organization. Simplification is the aim here, with the company wanting to reduce from five to three business units. Cargill does not want to reveal many more details for the time being, but the CEO's memo to employees shows that action is required now that margins are under pressure.
ADM: accounting problems and lower profits
Archer Daniels Midland - ADM for short - already reported a 20% lower profit last financial year and results have deteriorated further in the first two quarters of this year. The grain division in particular, which accounts for about half of turnover, is having a hard time. This division's operating profit more than halved last quarter to $459 million. A cocktail of causes are mentioned, but lower grain prices in particular seem to have a negative impact on the figures. The American company wants to become less dependent on the volatile commodity markets and focuses more on food. But here too the benefits are under pressure. In addition, there were recent accounting problems in that branch, which cost the company's CFO. The current price of about $58 is about 30% lower than a year earlier. The company says it is confident of better results in the coming quarters.
Merging Bunge sees profits collapse
The American Bunge still performed excellently in 2023, but there is not much left of that this year. The second quarter was even worse than the first three months of this year, with operating profit slumping 71% to $289 million. Analysts were already expecting significantly lower performance, but these figures were even worse than expected. The price took a serious hit as a result. There was also good news at the beginning of this month, because a year after the announcement, the American company received permission from the European Commission to merge with another grain giant, Viterra, which has its head office in Rotterdam. The company believes this will allow it to better compete with ADM and Cargill, which are twice and four times as large in turnover respectively.
Louis Dreyfus performed excellently in 2023
Louis Dreyfus Company - the last of the quartet - also has a link with the Netherlands. The head office has been in Rotterdam since 2004. In 2023, the company saw net profit increase by $260 million to more than $1 billion, according to data filed with the Chamber of Commerce in June. Turnover fell by $9 billion last year to just under $50 billion. It's unclear how the company is performing so far in 2024. Given the headwinds at the other three, lower performances seem inevitable. For the time being, however, it remains a matter of guesswork, because the company that is largely owned by Russian-Swiss multi-billionaire Margarita Louis-Dreyfus usually does not advertise its financial performance.
Better second half of 2024?
After a difficult start to 2024, it is possible that the (listed) grain giants will have a better second half of 2024. The figures in the first two quarters at ADM and Bunge were depressed because grain growers held on to volumes in view of higher prices later this year. In the meantime, it is clear that grain prices are showing little sign of rising. This in combination with expected record harvests of corn and soy in the US is likely to fuel sales interest. This means there is enough grain to trade, although there are concerns about demand.
Bloomberg reported yesterday that leading hedge funds have the most bearish have been over raw materials since 2011. In particular, there are concerns about global demand for grains and metals. Reference is made to the faltering Chinese economy and persistent inflation in Western economies.