UPDATE 3-ADM has made takeover approach to Bunge -WSJ

(Adds comment from trader, farmer, company details)

Jan 19 (Reuters) - Agricultural processing and trading company Archer Daniels Midland Co has proposed a takeover of Bunge Ltd, the Wall Street Journal reported on Friday, a move that could set up a battle for Bunge with London-based rival Glencore Plc in an industry moving toward consolidation.

Bunge and other top grains traders - who make money by buying, selling, storing, shipping and trading crops - are struggling to adapt to a world of oversupply.

ADM said it does not comment on "rumors or speculation," while Bunge was not immediately available for comment.

Glencore last year sought a tie-up with grains trader Bunge in what was taken as the starting signal of a wave of consolidation and partnering in the industry.

The Journal quoted unnamed sources as saying that ADM had made the approach and that details were unclear.

White Plains, New York-based Bunge operates in more than 40 countries and is Brazil's largest exporter of agricultural products, while Chicago-based ADM says it has customers in 160 countries.

The scale of a deal between ADM and Bunge would raise bigger regulatory concerns than if Glencore acquired Bunge, said a grain trading source. Big asset divestments would be necessary to clear regulators in areas such as combining oilseed crushing operations, the source said.

Thats like New York buying Chicago to me. You buy a whole basket of goodies and then start dismantling, the person said.

A second grain trading source said there is so much overlap of oilseed crushing assets between the two companies that the deal looks defensive a way to keep Glencore from acquiring Bunge. Still, it would shore up ADMs assets in South America, the trader said.

Bunge rebuffed Glencore last year, and the two struck an agreement that temporarily prevents Glencore from making a hostile bid, according to news media reports.

Large grain traders have struggled in recent years with the global oversupply and thin trading margins have squeezed their core commodity trading operations, including those of Bunge, ADM, Cargill Inc and Louis Dreyfus Co. Together the four are known as "ABCD."

Shares of Bunge, which has a market cap of $9.79 billion, closed up 11 percent at $77.56 on Friday.

ADM has a market capitalization of $22.64 billion, while Bunge's market cap stands around $10 billion.

Illinois farmer Dan Henebry, who delivers corn and soybeans to ADM's North American headquarters in Decatur, Illinois, said he was worried a takeover of Bunge could lead to grain handlers paying farmers less for their crops.

"I'm sure it's going to make them bigger and more competitive, but I don't know if it's going to improve the bid to the farmer," he said.

The farm sector has already undergone a frenzy of mergers between the biggest seed and chemical companies, including last year's combination of Dow and DuPont.

"We've had so many mergers," Henebry said. "Less competition is not good." (Reporting by John Benny in Bengaluru, Rod Nickel in Calgary, Alberta; Tom Polansek in Chicago and Chris Prentice in New York; writing by Peter Henderson; Editing by Maju Samuel and Matthew Lewis)