For at least 100 years grain trade has been controlled by
the “five sisters” Continental Grain, Archer Daniels Midland, Louis Dreyfus,
Cargill and Bunge Corporations that have monopolized international grain trade
markets until recently when the Chinese dragon COFCO International (CIL) made
its stumbling entrance in 2014-17 paying its entrance fee with billions in
loses while everybody was laughing but no one is laughing now as the dragon
eats its way into the market.
The five sisters developed a sophisticated network of
farmers’ relationships, silos, ports, grain carriers controlling shipping and
grain trade markets all over the world over a period of decades. Their balloon
is about to get a hole from a Chinese dragon nail as it throws a 21st
century monkey wrench into the works.
When Trump placed tariffs on Chinese goods the Chinese
responded with tariffs of its own on American soy beans injecting pain in the
growing areas that must rigorously supports Trump’s policies and authoritarian governing
style. But the Chinese are now position to take away his blow horn and serve
him humble pie as negotiations on tariffs of manufactured Chinese goods are
linked to grain trade.
It seems that whoever convinced Trump of following this
route was not aware of the Chinese inroads in the grain markets or perhaps
Trump believe the Chinese would beg him not to impose tariffs and thus hurt its
economy. However, it is public knowledge that Trump does not read his
intelligence briefings and was caught off guard by the Chinese.
Lacking arable land China is investing heavily overseas in
the breadbaskets of the world including Russia, Argentina, and North America
and is making aggressive moves into the established grain trade markets which will
probably include swallowing the weakest links in the market like Bunge and
Dreyfus.
CIL’s pockets seem to be pretty deep. Aside from the fact that
most of its shares are owned by the Chinese state other shareholders include
Singapore’s Temasek, the World Bank private investment sector and Standard
Chartered a British bank as reported by the Economist on its first of February
edition.
Going public with an IPO might be in the cards for this new “sister”
regardless of the scrutiny it will bring to it. Nonetheless, planners might
also be considering the a long term game venturing into shipping and information
technology to learn what the market is doing ahead of the competition. However,
in this regard China has the advantage of its enormous consumer market and
therefore can set new rules for grain traders.
On the other hand, China cannot control the weather or the
planting seasons, yields, storage facilities like grain elevators near
production fields, port facilities and the bulk carrier fleet needed to
transport the grain along the trade lanes of the world. Moreover, in the age of
the Internet and satellite communications and observation of our planets
behavior others can play a new role in coming years as big data is collected
and analyze for the benefit of being the most inform in the playground.
