Top US, Japan farm co-ops form new grain trade venture

09-May-2012 Intellasia | Reuters | 7:01 AM Print This Post

The biggest farm cooperatives in the United States and Japan are joining forces to improve delivery of US wheat and barley to the biggest buyer, the latest sign of growing competitive pressure and supply anxiety in the global grain market.

China’s fast-growing appetite for imported grain and food stuffs has fuelled concerns about the availability of global food supplies, with some firms shifting to favour long-term deals over spot buying.

At the same time, several major takeovers or deals among the world’s leading grain merchants have stoked interest among Asian companies to get a bigger foothold in key markets. Marubeni Corp. is the leading contender to buy US grain trader Gavilon.

Minnesota-based CHS Inc (CHSCP.O), owned by farmers and ranchers across the United States, will own 51 percent of a joint venture with Japan’s Zen-Noh, they said on Monday. The joint venture, called CZL Inc, will primarily supply wheat and barley grown in the United States, Canada and Australia to Japan.

The deal gives Zen-Noh a stronger base in the United States, where it already runs a joint venture with Japanese trading house Itochu Corp (8001.T) that buys, stores, sells and ships crops in the United States.

Zen-Noh also operates a merchant business that includes grain facilities along the Mississippi River and Gulf of Mexico, traders say.

The deal gives Zen-Noh more depth and better access to export facilities in the Pacific Northwest that serve Asia, traders said. It also provides access to a larger pool of supply.

CHS Inc says it is the country’s third largest exporter of grain, and accounted for nearly 7 percent of all wheat and barley shipments between 2007 and 2010, according to Bill of Lading data aggregated by PIERS. Zen-Noh is far smaller, having shipped less than 1 percent of all exports, or just over 1.2 million tonnes in the four-year period, the PIERS data show.

CHS declined to provide additional information, and Zen-Noh did not reply to a request for comment.

“The headline country has been China,” said Chris Hurt, agricultural economist for Purdue University. “Their incomes are growing so fast… You see a lot of positioning for the possibility that Mother Earth’s resources just can’t keep up with demand. This causes people to want to have better assurances of available supplies.”

Concerns about China gobbling up more of the world’s food supply have increased the urgency among grain companies to operate in the United States and Canada. The two countries account for more than a third of the world’s wheat and corn exports.

The drive for a foothold in North America has fuelled the largest consolidation in the grain industry since Cargill CARG.UL bought grain storage, transportation, export and trading operations from rival Continental Grain in the late 1990s.

Glencore, the world’s No. 1 commodities trader, saw a large value in Canada, striking a C$6.1 billion ($6.2 billion) deal in March to buy the country’s largest grain handler, Viterra.

JAPANESE PUSH

Japanese companies, in particular, have been pushing to expand in the United States, with Marubeni Corp confirming on Monday it was interested in acquiring Gavilon.

Itochu on Monday said it was not considering a bid for Gavilon.

Japan was the world’s sixth largest importer of wheat in the 2011/12 marketing year, taking 6.1 million tonnes, the most since the 1996-97 marketing year. It was the world’s largest importer of corn, with purchases of 16.1 million tonnes, the most since 2008/09 and more than 50 percent more than the second largest importer, Mexico.

Importers have increasingly been forced to rely on the United States, the world’s top grain grower, in recent years because other producers like Argentina and Russia frustrated traders by curbing exports and bringing in disappointing harvests.

Importers worry that increased grain buying by China will exacerbate any future supply disruptions.

“That region of the world is growing substantially,” said Thomas Dorr, president of the US Grains Council. “People are looking at putting together origination and distribution and processing strategies that give them increased efficiencies and undoubtedly greater access to raw materials.”

China’s corn imports are likely to jump almost 60 percent in the year ending September 2013. That would make it the world’s fourth-largest buyer as Beijing strives to supply livestock feed to meet the fast-growing demand for meat and to cool near record prices, according to a Reuters survey.

ASSURED SUPPLY WANTED

Increasing worries about supply availability are a shift from a decade ago, when importers were more comfortable being spot-market buyers of commodities, said Chuck Conner, chief executive of the National Council of Farmer Cooperatives.

“With the markets that we’re selling into in Asia, particularly on any product that involves feed, those customers are just simply demanding year-round contracts,” said Conner, a former deputy secretary of the US Department of Agriculture. “They want assurances from the people that they’re doing business with that they’re getting product. There can be no disruption of supply.”

Itochu on Monday said it was not considering a bid for Gavilon.

US FARMERS GAIN EDGE

US farmers who own CHS benefit from the deal because it gives them greater access to the Japanese market.

Through its network of grain elevators, marketing offices and export terminals in North and South America, Asia and Europe, CHS moves more than 1 billion bushels of grain annually to more than 60 countries, according to the company. The company had revenues of $36.9 billion last fiscal year.

“Strategically aligning grain origination with growing consumer demand is core to our continued global commodities expansion on behalf of our cooperative owners,” said Rick Browne, senior vice president of CHS Asia-Pacific, in a statement.

The partnership elevates the role of farmers in grain transaction, giving them a more active role in selling the crops they produce.

Farmer-owned cooperatives formerly thought that they had done the best job for their members if they got their grain to an export port, said Phil Kenkel, who teaches about cooperatives at Oklahoma State University.

Cooperatives are increasingly “realising we need to be big enough to be a player in some of these very important export markets” to continue providing the best prices and outlets for their members’ crops, he said.

“They’re thinking much more of being in the whole supply chain,” he said.

http://uk.reuters.com/article/2012/05/07/uk-chs-japan-idUKBRE84616B20120507

 


Category: Japan

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