Very few people have heard of Bunge, one of the largest grain traders in the world. It handles and processes almost 140m tonnes of grain and oilseeds every year, making it a critical link in the entire agri-food chain.

Bunge is one of the four main global traders, collectively known as the ABCDs (Archer Daniels, Bunge, Cargill and Louis Dreyfus). It is ironic that with its scale, it is almost unknown, yet Bunge has been around for nearly 200 years. Like the panamax ships that carry its wheat and maize, Bunge has made slow and steady progress to last year record a turnover of over $58bn (€52bn). The company has a reach that extends from the fields of the US, Brazil and Argentina to the ports of southeast Asia, the demand engine for global commodities.

Bunge is the largest wheat miller in South America, the largest corn processor in the US and Canada and the largest integrated producer of sugar and ethanol in Brazil. Its sugar cane alone is grown on over 835,000 acres, of which Bunge owns 47,000 acres.

While its core business is trading, it also has a food and ingredients business with sales of $11bn. Throw in one million tonnes of fertiliser trade, and you get an idea of the sheer scale of the operation.

Coping with volatility

Commodity traders are all too familiar with volatility and Bunge chief executive Soren Schroder says the company manages risk actively to protect its margins.

He said: “There is a range of factors that can affect prices including currency fluctuations, natural disasters, crop failures and political or economic instability.”

As Bunge buys directly from thousands of farmers around the world, its scale allows it to help farmers manage their exposure to volatile grain prices. For example, in the US and Brazil Bunge uses instruments linked directly to futures markets to provide options to farmers. Schroder said this works well and protects the primary producer.

Capital intensive

This business is extremely capital intensive, with billions invested in infrastructure. Schroder outlined that its grain facilities alone can store upwards of 18m tonnes. Bunge spends around $600m every year on capital.

The fundamentals look good for a business like Bunge. Increases in population and income continue to drive long-term demand for food and hence crop production. World production of corn, wheat and soya beans has increased by almost 20% since 2008/2009, while consumption has increased by a similar percentage. And the outlook is bright, with production likely to increase a further 15%-20% by 2025.

But the biggest win for Bunge is that there is a growing mismatch between where crops are produced and consumed.

Brazil, Argentina and the Black Sea (Ukraine, Russia) will supply the bulk of growth in world trade. Brazil alone is expected to double grain exports over the next 10 years. Meanwhile, Asia and the Middle East will fuel the growth and increasingly rely on imports to meet growing demand.

All this will lead to robust trade growth that fits Bunge’s global footprint. World trade of corn, wheat and soya is expected to grow 150m tonnes (40%) to 500m tonnes over the next 10 years. Furthermore, the crops that are produced to feed animals to produce protein are generally far apart.

Schroder said Bunge is expanding its operations in Brazil, Australia, Ukraine and Canada to fill gaps and capture new flows, but that Brazil is the country to watch in terms of global food supply, especially in meat production.

One advantage of Brazil is that it has a range of raw materials on its doorstep. But he adds that it also has a great climate and favourable labour cost, which makes it unbeatable in terms of food production.

He said the weak local currency in Brazil is another factor that is encouraging production and therefore fuelling exports.

Origination

Schroder doesn’t think the point of origination is important for protein production because the difference in cost to ship grain versus meat is immaterial across the world. He said labour cost will be a much bigger factor as to where the protein is produced. While low oil prices lower logistics costs, he doesn’t feel this will change where protein is produced.

Schroder is very strong in his views on free trade. “The more open trade is the better, but on one condition – that everyone is on a level playing field.”

Regardless of the price of grain from one year to the next, profitability for Bunge is linked to volume. It needs to get the economies of scale to ensure its network of grain elevators, rail-cars, barges and ocean ships keeps busy. Sitting idle is when a company like Bunge loses money.

Schroder believes that the current grain prices are likely for the next crop cycle. He says that the supply demand balance is tight and it only takes one crop problem in one region to tilt the balance back.

He said “the world is living on small cushions of food. We are living from crop to crop”.

He is very clear on one thing – for Bunge to remain successful, despite its scale, it must continue to drive efficiencies. He said that Irish farmers must do this too as they are ultimately competing on a global stage.

He added that efficiency and continuous improvement at farm level are paramount so that Irish farmers become better farmers than anywhere else in the world through the use of technology and best practice.

Gordon Hardie, MD of Bunge’s food and ingredients business, will speak at the ASA conference in Kilkenny next Friday 11 September.