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Crop storage makers reap a little of what they have sown

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You could forgive the likes of Archer Daniels Midland, Bunge and Louis Dreyfus a touch of schadenfreude.

 

It looks like purveyors of on-farm storage equipment, having contributed to margin erosion for crop trading houses for some years, are now facing tighter times themselves.

 

The pressure on the originators was highlighted in by Fitch Ratings in a note on Cargill, highlighting that keeping possession of crops allows growers more choice over when to sell it – rather than be forced to sell off the combine at whatever rate is on offer.

 

“Farmers have increasingly used storage resources to increase flexibility as farmer economics have deteriorated,” the credit ratings agency said.

 

“These conditions have placed pressure” on grain merchants and processors, Fitch added, flagging “low margins for global oilseed… originations”.

 

Growing competition

 

However, while years of strong harvests have boosted the need for storage, it looks like the list of companies competing to build silos and so on has grown too.

 

Speaking at the investor conference for Agco, the owner of silo maker GSI, Elliott Simon at BMO Capital Markets flagged that “we’ve just been hearing recently that some competitors are making this area a focus given the increased demand for grain storage”.

 

Certainly, while Agco’s results showed GSI’s sales growth at 17% last year, to $1.0bn, that expansion was in the main down to acquisitions.

 

Organic sales growth was a more modest 3%, on a constant currency basis, with takings declining in grain and seed equipment in most major markets - ie North America, Europe and Asia Pacific.

 

Smart bins?

 

Some help is at hand from improved ways of making and installing equipment.

 

“We want to make more efficient and… lower cost,” said Martin Richenhagen, the Agco chairman and chief executive.

 

“And then we also add certain improvements,” he said, noting the development of what Agrimoney ponders may eventually become known as smart bins.

 

“We have basically a liner inside the elevator, which helps reduce mould and things like that.”

 

Still, that isn’t expected to revolutionise prospects, with GSI’s organic sales growth forecast at 3-4% this year too.

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