Global commodity trader Louis Dreyfus is gradually expanding its Western Canada grain-handling capacity, but is not looking to be active in mergers and acquisitions as the region moves to an open market, said the head of its Canadian office.
Privately held Louis Dreyfus, based in France, is a major global grain trader but holds just six per cent of Western Canada s grain-handling market share. Bunge Ltd. has said it plans to bolster its presence once Canadian Wheat Board s marketing monopoly ends but his company isn t planning to follow suit, said Brant Randles, president of Louis Dreyfus Canada.
(Company) valuations are very rich in Western Canada, said Randles. In terms of (Louis Dreyfus) being a buyer of another company, I think that s unlikely. It s a mature basin in terms of production and the build-out of capacity.
Louis Dreyfus is adding storage space to two of its 10 Western Canada grain elevators and will look selectively to fill holes in its grain-handling network, but is not contemplating more sweeping moves, Randles said.
But Randles said he expects to see major changes in the sector.
Private grain marketers are likely to want farmers to plant more mid-quality, high-yielding wheat because under the wheat board s control Western Canada currently produces too much top-grade wheat, Randles said.
As much as two-thirds of Western Canada s spring wheat harvest falls into the top two milling grades in some years, but Randles said export and domestic market demand for top supplies usually amounts to no more than half of that.
As a result, some of farmers top-quality wheat ends up sold to buyers who only need medium quality, he said.
Why don t we target our production to our demand? asked Randles.
The switch to an open market also brings challenges for grain traders like Louis Dreyfus. It owns no Western Canada port terminal space of its own and in an open market, will have to work out access agreements to terminals owned by its competitors, in order to ship grain to customers abroad.
Grain handlers will also need to pay more up front once they buy crops straight from farmers, meaning large or small, they will need more cash flow to participate.
Neither is an insurmountable challenge for Dreyfus, Randles said.