How perform giants as ADM, Bunge, Cargill, and Dreyfus?

Three of the four largest global grain companies, also known as the ABCD giants, are in financially turbulent waters. The common denominator here is that grain prices, after a few fat years, are now at a significantly lower level. And that affects the revenues of these billion-dollar companies. Strong reorganizations and significant declines in stock prices are sometimes unavoidable.

Of the two listed companies within the ABCD quartet, which together determine an estimated 80% of global grain trade, we have known for some time that things are getting tougher. The quarterly results of ADM and Bunge were downright disappointing in the first two quarters of this year. And also significantly lower than in recent years when revenues soared due to high grain prices caused by the war in Ukraine. We also know since the beginning of this week that Cargill is struggling. Only at Louis Dreyfus, after an excellent 2023, it is still a guess how things are going. From large to small(er), we take stock.

Reorganization at Cargill
The private American grain giant, unlike ADM and Bunge, does not have to open its books every three months, making it a bit more difficult to follow the company. Nevertheless, analysts had suspicions that Cargill is also facing challenges. And those suspicions are correct. Although results for the fiscal year 2023/24 have not been disclosed yet, internal documents obtained by Reuters indicate that the company's profit targets have not been met. Therefore, a shake-up is necessary. Simplification is the goal, with the company aiming to reduce from five to three business units. Cargill is not willing to disclose many more details at this time, but the CEO's memo to the staff indicates that action is needed now that margins are under pressure.

ADM: accounting issues and lower profits
Archer Daniels Midland - ADM for short - already reported a 20% lower profit last fiscal year, and the results have further deteriorated in the first two quarters of this year. The grain division, which accounts for about half of the revenue, is facing challenges. The operational profit of this division more than halved in the last quarter to $459 million. A mix of causes is mentioned, but it seems that the lower grain prices are hitting the figures. The American company aims to become less dependent on volatile commodity markets and focus more on nutrition. However, even here, revenues are under pressure. Additionally, there were recent accounting issues in that sector, leading to the dismissal of the company's CFO. The current stock price of around $58 is about 30% lower than a year ago. The company expresses confidence in better results in the coming quarters.

Merging Bunge sees profits collapse
In 2023, the American company Bunge performed excellently, but there is not much left of that performance this year. The second quarter was even worse than the first three months of this year, with operational profit plummeting by a whopping 71% to $289 million. Analysts were already anticipating significantly poorer performance, but these figures were even worse than expected. As a result, the stock price took a hit. There was good news earlier this month, as the American company received approval from the European Commission, a year after the announcement, to merge with another grain giant, Viterra, headquartered in Rotterdam. With this move, the company believes it can better compete with ADM and Cargill, which are respectively two and four times larger in revenue.

Louis Dreyfus excelled in 2023
Louis Dreyfus Company - the last of the quartet - also has a connection with the Netherlands. The headquarters have been in Rotterdam since 2004. In 2023, the company saw net profit increase by $260 million to over $1 billion, according to data filed with the Chamber of Commerce in June. Revenue decreased by $9 billion last year to about $50 billion. It is unclear how the company has been performing in 2024 so far. Given the headwinds faced by the other three, weaker performance seems inevitable. For now, it remains a guessing game, as the company, largely owned by Russian-Swiss billionaire Margarita Louis-Dreyfus, usually does not publicly disclose financial performance.

Better second half of 2024?
After a challenging start to 2024, it is possible that the (listed) grain giants may have a better second half of 2024 ahead. The figures in the first two quarters at ADM and Bunge were affected by grain producers holding onto volumes in anticipation of higher prices later this year. It is now clear that grain prices are not showing much upward movement. This, combined with expected record harvests of corn and soybeans in the US, is likely to stimulate sales interest. There is plenty of grain to trade, although there are concerns about demand.

Bloomberg reported yesterday that leading hedge funds are the most bearish on commodities since 2011. There are particular concerns about global demand for grains and metals. The slowing Chinese economy and persistent inflation in Western economies are cited as reasons for worry.

Wouter Baan

Wouter Baan is the editor-in-chief of Farmerbusiness and a market specialist in dairy, pork, and meat at DCA Market Intelligence. He also tracks developments within the agribusiness sector and conducts interviews with CEOs and policymakers.

w.baan@farmerbusiness.com