US Agribusiness Companies Join Forces to Face Volatile Wheat Market

By: Deyana Ivanova
Deyana Ivanova
Deyana has a media background as a Journalism graduate. With a general interest in the financial markets and global… read more.
on Mar 6, 2013

**Volatile Wheat Market Triggers Major Merger in Milling Industry**

The worst US drought in half a century burnt fields and lifted grain prices to record levels last year. Most-active wheat futures gained 21 percent from June 1 through December 31. Since the beginning of 2013, prices have fallen almost 10 percent. On March 5, the contract for May delivery was unchanged at $7.06 a bushel on the Chicago Board of Trade (CBOT), after prices fell to $6.975 a bushel the previous day — the lowest since June 25. This volatile market environment and expectations of uneven wheat supply have triggered a major consolidation in the milling industry.

Three US agribusiness groups –Cargill, CHS (NASDAQ:CHSCP) and ConAgra Foods(NYSE:CAG) – have announced plans to join forces and form the largest flour-miller in North America. According to a joint statement issued by the companies on March 5, the new venture, which will have a combined revenue of $4.3 billion (£2.8 billion, will be called Ardent Mills. Said ConAgra Foods’ chief executive, Gary Rodkin: “Ardent Mills will set the new industry standard by addressing the most important issues facing customers, such as commodity price volatility, increasingly sophisticated food safety requirements, the need for more cost-effective supply chains and growing market demand for more innovation in products and processes.”

**Ardent Mills to Control 34% of US Flour-Milling Market**
Ardent Mills will combine ConAgra Mills, the milling unit of ConAgra Foods, and Horizon Milling, a joint venture formed in 2002 between Cargill and CHS. Horizon is considered the largest US flour-miller in terms of capacity which is 290,500 hundredweight(cwt) per day, while ConAgra is third with 255,100 cwt per day. Under the planned merger agreement, Horizon brings 21 US and Canadian flour mills to the deal, and ConAgra adds 23 US flour mills. With the total of 44 mills,Ardent Mills would control roughly 34 percent of the USflour-milling market, with total daily wheat and durum flour capacity for the combined company estimated at around 576,100 cwt per day.

Cargill, which the world’s largest grain processor and trader, and food manufacturer ConAgra will each own 44 percent of Ardent Mills, while agricultural company CHS will have a 12 percent stake in the venture. Horizon Milling president Dan Dye will become chief executive of the new company. Bill Stoufer, the current president of ConAgra Mills, will become Ardent Mills’ chief operating officer and chief integration officer.The three owners will receive about $800 million (£528 million) to $1 billion (£660 million) in cash distributions from Ardent Mills when the transaction closes in late 2013.

!m[Cargill,CHS and ConAgra Foods Combine to Create Flour-Milling Superpower](/uploads/story/1573/thumbs/pic1_inline.png)
The deal is subject to regulatory clearances. If antitrust concerns develop, the government could require some sort of asset divestitures. A spokeswoman for Cargill, Lisa Clemens, said the company will work closely with antitrust agencies if they have any questions. She refuted speculation that US officials might object due to antitrust concerns: “There are about 25 major milling companies in the US. It is a very competitive market.”
Following the announcement of the merger plan, the ConAgra Foods share price climbed 0.12 percent to a close of $34.73 on March 5 after peaking at $34.95 earlier in the session, its highest level since August 1997. The CHS share price also rose during early New York trading but unlike ConAgra the agricultural company saw its stock declining by 1.01 percent to $32.25 at the end of the session.

Are you looking for fast-news, hot-tips and market analysis? Sign-up for the Invezz newsletter, today.

Invest in crypto, stocks, ETFs & more in minutes with our preferred broker, eToro
10/10
67% of retail CFD accounts lose money