The U.S. drought sent grain prices to record highs and destroyed a large part of this year’s grain production. Data by the U.S. Agricultural Department on Tuesday showed that soybean condition ratings were at their lowest since 1988. As U.S. grain output is set to disappoint this year, commodity trading firms are focusing on which exporting nation will be the main beneficiary in terms of filling the supply gap and saving the world from a grain shortage.
Margarita Louis-Dreyfus, who has a controlling stake in giant commodities trading firm Louis Dreyfus Commodities, the world’s second-largest wheat, and sugar trader, tells CNBC: “Russia had a drought, too, so this time, it will be South America, especially Argentina and Brazil.”
Louis-Dreyfus adds that that after a tough start to the year, the outlook for the Brazilian agricultural sector is improving. “We had a very positive sugar cane crop, which was better than last year, and the other commodities are also seeing strong growth. I’m confident that the outlook for the rest of the year is very good.”
With almost 50 percent since early June, soybean prices up 30 percent and wheat prices having risen some 40 percent, commodity traders like Louis Dreyfus are in for bumper profits.
Many analysts argue though that the grain market is at risk of a considerable correction by the end of the year, should the supply situation in Russia, the EU and Australia turn out to be not as bad as feared. However, Louis-Dreyfus believes that prices will stay elevated, close to record highs.
“Of course I don’t know that the exact prices will be, but this year is a difficult one, so prices will remain close to those highs,” Margarita Louis-Dreyfus said.
On Tuesday, the U.N. warned that “world leaders must take swift, coordinated action to ensure that food price shocks do not turn into a catastrophe that could hurt tens of millions of people in coming months”.
The U.N.’s Food and Agriculture Organisation’s July food price index saw a 6 percent rise in July. Margarita Louis-Dreyfus does not see a risk of a renewed food crisis though. She tells CNBC:”There is no reason for panic. Very soon the next crop will be harvested, and that will yield enough.”
Recent reports suggest that Louis Dreyfus Commodities is gearing up for an IPO to benefit from the boom in commodity prices thanks to supply disruptions and rampant demand from emerging markets. Louis-Dreyfus however says there’s no need for a listing at the moment. “There are many advantages and disadvantages to that. Right now, I simply don’t see the need to go public.”
In 2011, the trading house reported sales of $59.6 billion dollars, an increase of 29 percent over the previous year, and after-tax profits of $735 million.