We could be in a movie set for a Western shot in Utah. Before us is a near-vertical mountain of what looks like sandstone. With its sharp ridges and peaks, the yellow-brown pile just needs a fire pit at its base to look like a cowboy camp at dusk.
In reality, we are in a massive, dimly lit covered warehouse – capacity 50,000 tonnes – near the outer edge of Rotterdam's harbour, which stretches some 40 kilometres west from the city centre to the North Sea. It is Europe's biggest port.
The mountain is composed entirely of crushed soybeans from Argentina and was imported by Glencore Agriculture (Glencore AG), the global agricultural company that is equally owned by Glencore, the commodities trading giant, and two Canadian investors – the Canada Pension Plan Investment Board (CPPIB) and the British Columbia Investment Management Corp. (BCIMC).
The crushed beans come from Argentina, where Glencore AG operates the world's biggest soybean processing and crushing plant, with an annual crushing capacity of 11 million tonnes. The soy will be loaded into Glencore-owned rail cars by Glencore's Dutch port agent, European Bulk Services (EBS), and dispersed across Europe, with most of it going to Hungary, where it will be blended into animal feed. "We can take some of the world's biggest vessels here," says André Brussé, EBS's sales manager, pointing to an 800-metre-long jetty. "From here, we can load onto trains, trucks or river barges."
Glencore AG has 14,000 employees and has become a key player in the global agricultural trade. While it is not as big or diversified as the so-called ABCD companies – Archer Daniels Midland (ADM), Bunge, Cargill and Louis Dreyfus – it's nipping at their heels and is among the top three marketers of seaborne traded wheat, durum wheat (mostly from Canada), feed barley, pulses, canola and sunflower and its derivatives, including sunflower oil.
Chris Mahoney, Glencore AG's CEO, says the company is No. 4 in grains and oil seeds, ahead of Dreyfus, but the numbers are hard to verify because Glencore AG is private and publishes only scant financial information. Last year, the company reported adjusted EBITDA – earnings before interest, taxes, depreciation and amortization – of $592-million (U.S.) on revenue of $22-billion. ADM last year had sales of $62.4-billion. Cargill, the biggest private company in the United States, reported fiscal 2016 sales of $107.2-billion, making it the world's top agricultural commodities trader and processor.
But having bought Canada's Viterra in 2012, the deal that vaulted it into the big leagues, Glencore AG may just be getting started. Lincoln Webb, BCIMC's senior vice-president, says the fund supports Glencore AG's expansion efforts. "Our clients have significant capital depth," he says. "We view Glencore AG as a strong, well-managed platform in the agricultural space – a space we have significant interest in."
Bruce Hogg, CPPIB's managing director and infrastructure boss for the Americas, says that "Glencore AG, with its global footprint, is well positioned to benefit from increased agricultural demand and increased trade to meet this demand."
Infused with the DNA of its deal-mad parent, Glencore AG is always on the prowl for acquisitions and there have been strong rumours it's ready to pounce in the United States. In February, Glencore CEO Ivan Glasenberg said, "We want to grow in agriculture. We want to fill a gap in the U.S."
Mr. Mahoney admits that the United States represents a "significant gap" in its global portfolio but plays down the suggestion that a big American acquisition is necessary. He calls the American market "mature," that is, it lacks compelling growth opportunities, and that, given Glencore AG's size, a small acquisition wouldn't do much to bulk up the business.
Still, the rumours persist. One of them centres on Gavilon Group, a Nebraska grain merchant owned by Japanese commodities company Marubeni, that analysts have said would fit well with Glencore AG's focus on grains and infrastructure.
Glencore AG did, however, announce the purchase this week of Gavilon's grain-storage site in Grand Forks, N.D., for an undisclosed amount. The site can store 140,000 tonnes of grain and load 110 rail cars. The purchase was small but signals Glencore AG's interest in filling the U.S. hole.
Mr. Mahoney offers a "no comment" when asked if a bigger deal is in the works.
Glencore favours highly competitive executives and managers and Mr. Mahoney, 58, seems to fit the bill. Bald, muscular and devoting to cycling, he looks like he could empty a grain silo in about 10 minutes with a shovel.
A Briton, he was a member of the Oxford rowing team between 1979 and 1981 and won silver in the eight-man boat at the 1980 Moscow Olympics. As an athlete, he is probably best known as a member of the Oxford squad that pulled off a near-miraculous win in the 1980 race against Cambridge. About two-thirds through the race, the Oxford bowman collapsed from exhaustion and stopped rowing. The other seven powered up and managed to beat Cambridge (whose oarsmen included the actor Hugh Laurie) by the narrowest margin in a century.
Mr. Mahoney spent 17 years at Cargill and joined Glencore AG in 1998. At the time, the company was pretty much a nonentity. Like Glencore itself, Glencore AG owes its existence to Marc Rich, the infamous Swiss commodities trader who became America's most wanted fugitive before his pardon by Bill Clinton on his last day in the White House in January, 2001.
Mr. Rich had formed Richco Grain in 1980 and tacked on the international assets of Granaria, a Dutch grain trader, a year later. Exploiting Mr. Rich's superb Middle East connections, it became a near-exclusive supplier of barley to Saudi Arabia. But trading alone is a risky business. If you lack the infrastructure along the value chain – silos, ports, ships, rail cars, processing and refining plants – you end up paying middlemen all along the way, robbing you of profit at every turn.
So in the mid-1990s, after Mr. Rich had sold control of Glencore to his managers, who included Mr. Glasenberg, Glencore AG got into the infrastructure game. "We didn't want to have to buy commodities from our competitors so we became a logistics business to enable us to buy directly from the farmer," Mr. Mahoney says. "It's the chain that makes the money."
In came grain-handling and oilseed-crushing businesses, many of them in Latin America, Eastern Europe and other parts of the former Soviet Union. But Glencore AG was still a bit player in a business dominated by the ABCD giants, whose market shares were so big that global aid charity Oxfam and smallholder-farmer advocates questioned their potential ability to manipulate markets.
Glencore AG's transformational deal came in 2012, when it spotted the opportunity to buy Viterra, Canada's largest grain handler, which had been formed by the 2007 merger of Saskatchewan Wheat Pool and Agricore United. "We had always been interested in the Canadian market because we had a significant presence in wheat, barley and canola," Mr. Mahoney says.
He moved fast, because he was pretty sure that ADM was also in pursuit of Viterra. Glencore AG paid $16.25 (Canadian) a share, giving Viterra an enterprise value (debt and equity) of $7.2-billion. It sold off $2.6-billion of assets it didn't want, like pasta processing, and kept the grain infrastructure and trading businesses. Overnight, Glencore AG became a global name. Before the deal, the company was handling about 45 million tonnes a year of grains and other agricultural products. Viterra pushed the number to 70 million tonnes.
Today, Glencore AG, with Viterra at its side, has 274 storage facilities, such as grain elevators and silos, in 17 countries. It has 36 processing and refining plants in a dozen countries, and 23 port terminals in eight countries, including Canada and Australia, where Viterra had a big presence. Rounding out the portfolio is a charter fleet of 180 ocean-going ships and almost 2,000 rail cars.
About 80 per cent of Glencore AG's business comes from logistics such as storage, handling, processing and transportation. The rest comes from trading. Many trades are hedged and the company may use a long-short strategy to exploit the price differentials between, say, Russian and North American export grain prices.
Not long after Glencore snapped up Viterra, the commodities rut forced Mr. Glasenberg into retreat. Glencore shares were sinking fast as oil, copper, nickel, coal and other commodities slumped. The company's London-listed shares went from £3.50 ($6.20) in 2014 to under £1 a year later. As the equity value sagged, Glencore launched a massive deleverging exercise. It had always thought about bringing in partners to help build Glencore AG, and accelerated the recruitment process. Half the company would be sold to pay down debt. The buyers would be the Canada and B.C. pension plans.
Last year, CPPIB came in for 40 per cent, paying $2.5-billion (U.S.) BCIMC paid $624.9-million for a 9.9-per-cent stake. The Canadians and Glencore are now long-term partners; CPPIB and Glencore have agreed that either side can call for an initial public offering after 2024.
Mr. Mahoney says that, even absent a big acquisition, Glencore AG is a growth story. Global population continues to surge and diets are becoming richer in protein, which means animal meal, such as the crushed soybeans that go into Rotterdam, will remain in high demand. But Glencore and Glencore AG are famous as serial buyers, not organic builders. "We generally prefer to acquire than build," Mr. Mahoney says. "We are only interested in businesses that are asset-heavy."