Crop Giants Feel the Heat Amid an ‘Explosion’ of C-Suite Shuffling

(Bloomberg) -- The world’s largest agriculture bosses are feeling the heat as beleaguered markets are ratcheting up investor pressure and forcing top management changes.

Bunge Ltd., the “B” of the four storied “ABCD” group of companies that dominate agriculture trading, is the latest to succumb. On Wednesday, the firm named a new chief financial officer less than six months after it announced its chief executive officer was stepping down. Gavilon Group, a U.S. trader owned by Japan’s Marubeni Corp., replaced its CEO just over a month ago, while Louis Dreyfus Co. -- the “D” -- made C-suite executive changes last year.

“We’ve seen an explosion in changes at the top lately," said Stephen Nicholson, a senior analyst for grains and oilseeds at Rabobank, a lender to the agriculture industry. "Part of it is that the agriculture industry, when you look at the results in the past five years, they are not nearly as good as they used to be."

Bumper crops from the U.S. to Brazil and Russia have depressed global prices and curbed volatility, squeezing profits for the ABCD traders that also include Archer-Daniels-Midland Co. and Cargill Inc. An index measuring returns from grain futures is trading near its lowest since 1977. The gauge has posted six straight annual losses, underperforming rival assets.

Crop Giants Feel the Heat Amid an ‘Explosion’ of C-Suite Shuffling

To make matters worse, Donald Trump’s trade war with China has has made markets even harder to navigate. With crop futures swinging along with the president’s tweets, the unpredictable nature of market volatility has meant traders couldn’t always profit. ADM, Bunge and Dreyfus have all announced mark-to-market losses, some accrued because of wrong-way bets on the tit-for-tat-tariff spa that has lasted a lot longer than most had forecast.

“We continue to have no resolution -- we’ve got traditional trade flows interrupted,” Bunge CEO Greg Heckman said on a call to discuss earnings on Wednesday, citing the company’s inability to put long-term programs in place. “It’s very disruptive to the system.”

Bunge named John Neppl, who was previously with U.S. ethanol producer Green Plains Inc., as its new CFO, replacing Thomas Boehlert. The move came after Heckman, who joined the company’s board last year, was named as permanent CEO in late April. He took over the top spot from Soren Schroder.

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Dreyfus brought Ian McIntosh over as CEO from its shuttered hedge fund, replacing Gonzalo Ramirez Martiarena in September. Gavilon promoted Steven Zehr to its top job in April from his previous role as chief operating officer, the second change in three years.

Smaller traders have also made changes. Scoular Co. named Paul Maass as CEO in 2016 and brought over Andy Kenny from ADM to take the finance role starting in 2019.

“Let’s face it, any time the agricultural economy has the kind of stress that it’s been under the last five years or so, it tends to accelerate this kind of turnover,” said Chad Hart, an agricultural economist at Iowa State University. “The thinking is that these are the folks that led us into the downturn, they’re not necessarily the best suited to lead us out.”

Lower profits have become the new normal for an industry that used to benefit from opaque, secretive markets. Information now travels faster, quickly closing the window traders have to benefit from regional price differences. At the same time, crop producers have increased their on-farm storage, lessening their dependence on the trading houses.

The current rout is one of the worst downturns since some of the powerhouses went public, placing a new level of investor pressure on the companies. Bunge, for example, first offered shares in 2001. Dreyfus now has bond investors, and even Cargill, America’s largest privately-held firm, discloses its accounts on a quarterly basis. ADM went public in the 1980s.

‘Investor Pressure’

“There’s a lot more investor pressure,” Rabobank’s Nicholson said. “Two out of the three large grain companies are public, and when they don’t meet the returns stockholders and big investors expect, they make changes. In the 1970s, they were all privately held.”

The changing landscape prompted some top executives to declare the end of the era when crop companies can rely on trading for profits, and now the major players are in the midst of a reinvention. Cargill has focused on its protein sector, investing in everything from beef to aquaculture. ADM is prioritizing ingredients and animal feed, while Dreyfus is seeking to sell stakes to key partners.

There’s also the specter of consolidation, with Glencore Plc and ADM having both approached Bunge for a takeover.

“Every organization has a time when they need to look at everything across the board and make market adjustments,” Gavilon’s Zehr said in an interview in Omaha last week. “We are going to look at things domestically and also internationally that fit our footprint and make the best decisions, whether that’s invest, divest or reinvest.”

More Shuffling

The management reshuffle isn’t limited to the top jobs. Cargill recently announced its head of agriculture G.J. van den Akker is retiring and will be replaced by Joe Stone, a company veteran of 34 years. ADM last year moved Joe Taets, previously in charge of global trading, to a new role as Stefano Rettore, who had previously joined from U.S. agricultural co-operative CHS Inc., took over the new origination unit. Bunge also announced a number of internal changes Wednesday.

“The bigger players in ags are quite clearly determined to re-think the business models they’ve adopted for some years now,” said Jakob Bloch, CEO of Commodity Appointments Group, adding that agriculture companies have tended to promote from within.

“Various parts that used to be viewed as core could be discarded along the way,” he said. “In the end it’s all a question of profitability and contribution to group revenue, but a decision to adopt a new way of working could prompt a search for fresh leadership from outside the established management hierarchy.”

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