Less than three years ago, the world’s biggest agribusinesses were riding their latest high as they cashed in on market chaos after Russia’s assault on Ukraine upended the global food supply chain and sent grain and oilseed prices soaring.
Now the “ABCD” giants — Archer Daniels Midland, Bunge, Cargill and Louis Dreyfus — have fallen on tougher times, underlining their struggle to diversify as they seek to break free from the sector’s cycle of booms and slumps tied to global commodity prices.
ADM and Bunge, the two listed members of the group, last month reported plunges in their annual profits, down 48 per cent and 49 per cent respectively in 2024 — and the pain is far from over with both expecting even steeper slides this year.
The four companies have long been the sector’s uncontested leaders, generating hundreds of billions of dollars in revenues through their grip on the trade and processing of agricultural raw ingredients, particularly grain and oilseeds. But they operate on razor-thin margins, with profits surging as prices swing during market volatility and struggling in calmer times when arbitrage opportunities shrink.
The latest downturn came despite strategic changes aimed at making the quartet “less exposed to outright crop prices”, said Kona Haque, head of research at commodity trader ED&F Man.
The ABCD “are very good at trading because that’s what in their DNA but they may not be as good at other parts of the supply chain”, she added. “Are they good farmers? Are they good retailers? Are they good mill owners? Or are they just good traders and shippers?”
Jean-François Lambert, founding partner of consultancy Lambert Commodities, said the ABCD had “morphed into agroindustrial players rather than pure traders . . . the only exception is Dreyfus”.
Louis Dreyfus undertook a major restructuring after heavy losses in the 2000s, divesting non-core, lossmaking assets and doubling down on its core strengths — commodities trading and shipping.
While the company reveals even less than its listed rivals, it has not been immune to the sector’s woes, saying in its most recent results disclosure in September that earnings in the first half of 2024 were down 14 per cent on a year earlier. The company declined to comment to the FT.
ADM and Bunge attributed gloomy profit forecasts last month in part to geopolitical uncertainty — something the industry has traditionally thrived upon — including the potential impact of US President Donald Trump’s trade policies.
“The pure traders can take advantage more easily of volatility than the agroindustrial players,” said Lambert. “The agro-industrial players are stuck; they have a long-term strategy and they’re much less nimble.”
Hartwig Fuchs, an ADM shareholder who formerly chaired a German commodity trader that the group acquired in 2014, noted that its shares were no higher than 10 years ago when Juan Luciano became chief executive, despite billions of dollars poured into the lower-volume but higher-margin nutrition business.
“I’m a small shareholder but I simply think that is totally, utterly unacceptable,” he said. “These buggers get tens of millions of dollars every year to deliver what? Zero.”
ADM is also facing a regulatory probe into its accounting practices after an internal investigation found historical profits in its nutrition business had been overstated.
The company’s push to diversify has come amid shareholder pressure for more stable, predictable growth, say analysts. Luciano has focused on building the nutrition business, starting with the acquisition of Wild Flavors for $2.9bn in 2014 when he was chief operating officer.
On becoming chief executive the following year he set ambitious targets, aiming for 15-20 per cent of ADM’s revenue to come from value-added businesses by 2020. But despite billions spent on acquisitions, the nutrition business has struggled to meet expectations and still makes up less than 10 per cent of group sales.
“ADM always was able to make a lot of money at processing and commodities, and they’re really good at it,” said Fuchs. “Now, why do I as a shareholder have to accept that you spend $3bn for a business that you don’t know?”
Bunge has sought to reduce its reliance on commodity volatility through its $8.2bn merger with Glencore-backed Viterra. The deal, which will combine the world’s top oilseed processor with a leading grain trader, stands to create a $25bn group capable of competing with ADM and Cargill.
“While we didn’t end 2024 as we expected and our forward visibility is limited, we are confident that the steps we have taken will allow us to continue to create value for all stakeholders,” the company told the FT.
It added that “with a diversified global mix of earnings across processing, handling and merchandising, and value-added products, we will increase the resiliency of our cash flow generation”.
Cargill, the world’s largest agricultural commodities trader, is also suffering. The privately held group said in December it would cut 5 per cent of its 164,000-strong workforce while streamlining its operations from five business divisions to three as it reported a 10 per cent drop in revenues to $160bn for the fiscal year ending May 2024.
“Cargill’s decision to diversify was driven by the same pressures facing ADM,” said Seth Goldstein, analyst at Morningstar. “The need for more predictable, stable earnings in a less volatile environment.”
Like ADM, Cargill expanded into nutrition but its boldest move was into meat processing. Its meat packing operations helped boost profits and set it apart from its top rivals but the meat sector, like grain trading, is cyclical.
Cargill’s future lies in further value-added downstream expansion, according to Florian Schattenmann, the Minnesota-based company’s director of research and development. “When you have a portfolio, one part . . . might be up, another down, so that stabilises things,” he said, adding that the company was diversifying into products such as plant-based protein “with very clear trends in mind: health, nutrition, sustainability, food security.”
Schattenmann said the group was being cautious, with many projects, such as lab-grown meat, developed in partnership with start-ups and customers.
“Cargill is 160 years old—we know our markets and invest in that environment with close collaboration with customers,” he said, with companies that did this typically outperforming “in terms of total shareholder returns”.
“If we did our work right,” he added, the new businesses “should create some additional value, which typically leads to hopefully higher margins” — echoing comments in September from ADM’s Luciano that he had “not personally lost my aspirations” for the nutrition business.
Many observers, however, remain sceptical.
“Unless one of these businesses makes a transformational acquisition, in the form of a merger with a larger ingredients business or someone outside of the agri business,” said Goldstein, “they’re likely to remain very volatile and beholden to agricultural conditions”.