Foreign traders invade grain giants' turf

For decades, the world's leading grain traders like Cargill and Bunge enjoyed an unparalleled advantage with their smaller North American competitors lacked the flexibility and diversity of a global operation, and their foreign rivals lacked access to the biggest and most stable exporters in the world. That's about to change.
Large US and Canadian grain companies that have come up for sale are offering Asian and European traders like Glencore and Noble Group a rare chance to secure a foothold in the market. They are jumping on the opportunities in hopes of expanding operations and profits in the low margin, high volume business of grain handling, creating unprecedented new competition for traditional players on their home turf and the largest wave of consolidation in the industry since Cargill bought rival Continental Grain in the late 1990s.
The urgency to operate in the United States or Canada, countries that account for more than a third of the world's corn and wheat exports, has grown because of increasing global demand for crops. Other producers like Argentina and Russia have frustrated grain traders in recent years by curbing exports and bringing in disappointing harvests.
"If you really want to have an origin for corn, wheat and soybeans, the US is the place," said Harold Reed, chief operating officer of The Andersons, an Ohio-based grain and ethanol company. International traders, well aware of demand pressures, "see the US and Canada as the one sound anchor that just doesn't ever go away," Reed said. "The government is reliable, the export program is reliable, the weather is usually reliable."
Glencore, the world's No 1 commodities trader, saw a large value in Canada, striking a C$6.1 billion ($6.2 billion) deal last week to buy the country's largest grain handler, Viterra. Gavilon, a major US agriculture and energy trader, is up for sale.
To be sure, Glencore had additional incentives to pursue Viterra. The end of Canada's nearly seven-decade wheat marketing monopoly has enhanced its appeal for global traders, and Viterra owns valuable assets in Australia. Companies including Mitsui & Co, Marubeni Corp and Hong Kong-based Noble are jostling to buy Gavilon, valued at around $5 billion, according to sources.
While the move to open Canada's wheat and barley markets to competition is a strong incentive to enter the sector, senior executives said it is the dramatic inversion of the global market that is spurring the race for assets and access. A boom in Asia's population and increased use of corn to make biofuels has tightened global grain supplies, making demand the primary driver of agricultural markets instead of supply fluctuations. That makes it even more critical for companies to be able to secure enough crops from reliable suppliers.