Thursday, November 30, 2023

Ag Companies Keep Eye on Turmoil in Ukraine


(Dow Jones) — Global grain companies said Monday that their Ukrainian operations haven't been affected so far by escalating turmoil in the country, which has drawn heavy investment from commodity traders and processors in recent years.


While agricultural exports continued Monday, the crisis gripping Ukraine highlights the risks posed by a region that has taken on a greater role in supplying commodities such as corn and wheat to foreign buyers.


The biggest agricultural trading houses — Archer Daniels Midland Co., Bunge Ltd., Cargill Inc. and Louis Dreyfus Commodities Group — have spent tens of millions of dollars in recent years on ports, grain facilities and processing plants in the Black Sea region. Much of the investment has focused on developing infrastructure in Ukraine, which in 2013 ranked as the world's third-biggest corn exporter and one of the six largest shippers of wheat and barley, according to U.S. Department of Agriculture data.


“You can't, as an agribusiness company, avoid Ukraine if you want to maintain your global position,” said Tim Tiberio, an analyst with Miller Tabak.


Ongoing uncertainty over the future of Ukraine deepened over the weekend after Russia shifted military forces into the Crimean peninsula following months of political unrest in the country.


Officials for ADM and Bunge said Monday that their facilities there continued to operate normally. Representatives for Cargill and Louis Dreyfus declined to comment.


Investor concerns over potential hiccups in the world grain markets pressured ADM and Bunge shares, however, with ADM closing 1.8{75f28365482020b1dc6796c337e8ca3e58b9dd590dc88a265b514ff5f3f56c30} lower at $39.88 and Bunge off 1.5{75f28365482020b1dc6796c337e8ca3e58b9dd590dc88a265b514ff5f3f56c30} at $78.43, outpacing smaller declines in major stock indexes.


Wheat futures traded in Chicago jumped 4.6{75f28365482020b1dc6796c337e8ca3e58b9dd590dc88a265b514ff5f3f56c30}, the biggest gain in more than 17 months, as traders speculated that exports from Ukraine could slow. Corn futures also rose, reaching the highest price in more than five months.


The Black Sea region has come to prominence among major grain merchants that seek to buy crops from farmers and sell them on the world market. ADM runs an inland grain-elevator system, ports and an oilseed processing plant in Ukraine, and the Decatur, Ill., company sees the potential to invest further in the region, Chief Executive Patricia Woertz told investors in a presentation last week.


Bunge runs grain elevators, as well as a port in Nikolaev and a crushing plant in Dnipropetrovsk, alongside an office in Kiev. In 2011, the White Plains, N.Y., company bought a Ukrainian port terminal for $100 million, and it employs about 1,100 people there, a spokeswoman said Monday.


Cargill, based in suburban Minneapolis, in December bought a 25{75f28365482020b1dc6796c337e8ca3e58b9dd590dc88a265b514ff5f3f56c30} stake in a deep-sea port in Novorossiysk, a southwestern Russia town on the Black Sea, and in January acquired a 5{75f28365482020b1dc6796c337e8ca3e58b9dd590dc88a265b514ff5f3f56c30} stake in UkrLandFarming PLC, which grows and sells crops across Ukraine.


Netherlands-based Louis Dreyfus in October forged a joint venture with Ukrainian port company Brooklyn Kiev LLC to develop a terminal in the Ukrainian city of Odessa that is expected to have 240,000 metric tons of grain storage capacity.


Ukraine has been exporting on average 2 million to 2.5 million metric tons of corn a month, according to James Dunsterville, co-founder of AgFlow SA, a commodity trade analysis firm based in Geneva. That figure could slow if the crisis persists, he said.


“The exporters will be very cautious now selling more,” and will focus for the time being on completing sales of Ukrainian grain that have already been agreed with foreign buyers, Mr. Dunsterville said.


Officials for Bunge and ADM declined to comment further on grain trading matters.


For grain traders, hiccups from Eastern Europe are nothing new, with Ukraine and Russia both having temporarily banned grain exports in recent years because of poor harvests.


Managing geopolitical risk more generally is a common challenge for commodity trading houses like ADM, Cargill, Bunge and Louis Dreyfus, which all are more than a century old and have navigated through numerous wars and other upheavals.


Fluctuations in supply from various parts of the world can create opportunities for nimble and well-capitalized grain merchants, though prolonged conflict and the effects on trade and company assets can be hard to predict, Miller Tabak's Mr. Tiberio said.


“We see it is a risk, albeit difficult to handicap from our vantage point,” he said.




Source:  Dow Jones

Posted by Haylie Shipp

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