Top oil trader Vitol is building a global grains desk and has taken advantage of Glencore’s takeover of Canadian grains giant Viterra to hire a team of its traders, trading sources said Wednesday.
Vitol, which has an annual turnover of nearly US$300 billion, will vie for market share along with rival trading firms Gunvor and Mercuria, which have also expanded in agricultural commodity markets as they seek to expand across new markets.
The Swiss firm’s advance into agriculture could help it spot niche opportunities in both energy and soft commodity markets, which are seen as increasingly connected due partly to the growth in crop-based biofuels.
"Markets are now linked in ways that they never were before. Ten years ago an oil trader could lead a happy existence without ever knowing what was happening to the corn price. Those days are gone," said Robert Piller, director of Aupres Consult and commodities lecturer at the Geneva Business School.
Rotterdam-based Vitol, already present in the sugar market, is hiring around 15 staff as part of the expansion, one of the sources said.
The trading sources said it had hired at least five traders from Viterra’s Geneva, Hamburg and Singapore offices following Glencore’s US$6 billion takeover last year.
The first grain trading staff are expected to join next month, two of the industry sources said.
Vitol declined comment. Glencore officials could not immediately be reached for comment.
Industry sources cited relatively high margins on agricultural markets compared with other commodities as a factor behind Vitol’s expansion as well as a bullish demand outlook for grains as the global population expands.
"You could expect a pure oil trader to get a gross margin of three per cent or one per cent net, whereas with agriculture and metals you could get five to six per cent and three per cent net," Piller said.
Vitol’s expansion in the agriculture market follows an upturn in the fortunes of dominant companies in the global grains markets.
Archer Daniels Midland (ADM) and Cargill, both members of a club of top grains traders known collectively as the ABCDs, have reported stronger profits in the fourth quarter of 2012.
Cargill said it had quadrupled quarterly earnings, while ADM reported a sixfold increase in profits despite lingering challenges caused by a U.S. drought.
By comparison, some traders have struggled to make money in an oil market structure known as backwardation, in which spot oil prices trade at a premium to more distant contracts, wiping out opportunities to profit through storage.
In the Glencore/Viterra tie-up — one of the largest deals in the global agriculture business for years — many Viterra traders discovered Glencore traders had similar roles to their own, the industry sources said.
"A lot of the main grains people at Viterra are not being taken on by Glencore because of direct overlaps," said a trader who formerly worked for Viterra.
"Hamburg and Singapore are being talked about as offices because of their regional grain trading strengths and the existence of Viterra offices in both cities."
— Emma Farge and Sarah McFarlane write for Reuters from London, England.