Admitting things didn’t go your way is painful for any trader. For Archer-Daniels-Midland Co., one of the world’s top merchants of agricultural commodities, it’s becoming a bit of a habit.
ADM on Tuesday revealed that its so-called global trade desk, which handles commodities such as wheat and soybeans from an office in the sleepy village of Rolle, Switzerland, posted its second quarterly loss in the space of a year. The Chicago-based company’s overall earnings fell short of Wall Street’s expectations, down 41 percent year-on-year.
Investors may be forgiven for thinking they’ve heard it all before. Back in 2014, Juan Luciano, at that time the company’s chief operating officer, said the preceding year had been "tough" for the trading business and promised aggressive actions to improve results. A year later, Luciano, by now ADM’s chief executive officer, declared himself "unhappy" with the unit and criticized a "bloated" cost structure. The year after that, he promised to turn it around.
ADM is facing the same challenges encountered by other traders of agricultural commodities. Bumper crops have reduced prices and volatility, while farmers are reluctant sellers. Furthermore, in the age of the Internet, intelligence about crops that was once the domain of traders now flows freely.
But for some industry observers, the problem goes deeper. Historically, ADM has focused much more on processing than trading, unlike its largest rivals Bunge Ltd., Cargill Inc. and Louis Dreyfus Co. The four companies are known by their initials as the "ABCD" of global grain trading.
"ADM does not have the DNA of a trading house," said Jean Francois Lambert, who as former head of global commodity trade finance at HSBC Holdings Plc dealt extensively with the sector. "ADM has built a fantastic agri-industrial business over a century, but that’s far from the culture of a trading house."
Although global trading is a key cog in the ADM machine, the company, with 32,000 employees, runs a far larger global business, from wheat milling to ethanol-distilling to natural-flavor products.
With bumper crops and good weather conditions, the trading desk "didn’t have dislocations to play with," Luciano told investors in a conference call on Tuesday. As in the past, he promised a series of "vigorous" measures to improve performance. The company has closed its small-sized energy trading operation based in Hamburg, Germany, changed staff in Switzerland and cut costs.
"We are spending a lot of time and effort to improve the results of the global trade desk," said Joe Taets, who as senior vice president of ADM’s agricultural services segment is in charge of global trading.
"We are increasing the cooperation with other units of ADM like corn and oilseeds processing," he said in an interview. He added that the trading desk is getting "closer to clients," including through joint ventures with local companies. In Egypt, for example, ADM teamed up with domestic merchant Medsofts Group in 2015 to sell grains and other commodities.
Some senior executives have already departed, according to people familiar with the matter. Victor Petzold, the company’s former head of global corn -- its top commodity -- has left, as has Thomas von Rymon, its global head of grains. Frederik Groth, until recently head of trading in Asia, has also headed for the exit.
While most of ADM’s businesses are run out its native U.S. Midwest, the global trade desk is based Rolle, which describes itself as the "Perle du Leman". The town, on the shores of the lake Leman, is about a half-hour drive from Geneva, where Dreyfus, Cargill and Bunge have trading floors. It was there, surrounded by vineyards and views of the Alps, that ADM assembled a new group in 2015 to fix its perennial trading difficulties.
ADM’s trading problem can be traced back to 1982 when it bought a stake in Alfred C. Toepfer International, an agricultural merchant based in Hamburg. The move was intended to expand its global trading operations, which until then had been focused on the U.S.
ADM bought more Toepfer shares from a dozen farm cooperatives in the following decades, eventually raising its interest to 80 percent. Toepfer, however, remained relatively independent. While it gave ADM an international presence, it also brought "a lot of volatility" to the trading house’s earnings, Luciano said in 2015. Worse, Toepfer was involved in several scandals, including the payment of bribes in Ukraine.
ADM’s patience ran out in early 2014. On a call with analysts in February of that year, Luciano described Toepfer’s performance as disappointing and promised "aggressive actions" to improve the situation. Weeks later, ADM announced it was buying the remaining 20 percent of Toepfer for 83 million euros ($89 million). It went on to rebrand the business ADM Germany GmbH, ending almost 100 years of the Toepfer name, and moved executives to Rolle from Hamburg.
Despite progress in 2015, when the trade desk reported profits in each quarter, ADM once again finds itself struggling with the business. Argentine-born Luciano has warned against expecting a full turn-around this year. In early 2017, he said, the global trade desk profitability will remain muted.