The agriculture sector is at, or near, “the bottom” of a cycle which has seen prices and volatilty depressed by sizeable stocks, Bunge boss Soren Schroder said, saying that 2018 “will be better, for sure”.
Mr Schroder, the chief executive of the agricultural trading giant, said that jt was “clear that we are in the middle of or maybe at the end, the beginning of the end, of a multi-year down cycle in agri”.
This had been marked by “mounting global stocks” of agricultural commodities and “competition on every corner”, he told investors, speaking after Bunged downgraded its forecast for full-year profits.
However, he said that he was “optimistic that we are, if not at the bottom, very close to it.
“I think next year will be better for sure.”
‘All cyclical factors’
While highlighting pressures on margins of agriculture businesses from an “oversupply of crops in almost every region, static trade flows, little incentives by consumers and farmers to price forward and low price volatility”, Mr Schroder said that there were “are all cyclical factors.
“We would expect that to change in time.”
However, the “macro drivers” of the sector “are supportive”, he said, citing “solid” growth in grain and oilseed trade volumes, and rising demand for soybean products, which was underpinning long-term prospects for crushers.
The soybean processing industry will “slowly but surely eat our way into excess capacity, and that should drive… margins up”.
Wheat, palm oil frontrunners?
Trading conditions would improve as market forces rebalanced, Mr Schroder said, adding that “we expect that supply will adjust to demand either through lower or reduced acreage because of poor farm economics,” or some other “disruption” to supplies.
Such a dynamic was already evident in wheat, in which US farmers have slashed sowings to the lowest in a century, and world production is expected to fall this season.
“The same thing will happen in corn and soybeans over the next year or two,” as weak prices prompt farmers to choose alternative crops, or leave marginal land unseeded.
Already, in the oilseeds sector, “continued strong growth in demand and lower expansion in palm production is pointing to tighter oil stocks, which could drive demand for softseed crush”, he said.
The comments come amid a difficult time for agricultural trading houses, with rival Archer Daniels Midland seeing its shares tumble on Tuesday after it unveiled below-forecast results, and a number of operators initiating restructurings and workforce shake-ups.
Some agribusiness groups have been prompted into deals by the low margin environment, a trend particularly evident in agrichemical groups, although Bunge has received an approach from rival Glencore Agriculture.