The global trade of agricultural commodities, particularly cereal grains, is one of the most important links in the entire food chain. Yet, this is another industry that is extremely concentrated and has been for a long time.

It is overwhelmingly dominated by just four companies, simply known as the ABCDs. ADM (Archer Daniels Midlands), Bunge, Cargill and (Louis) Dreyfus between them control between 75% and 90% of all the grain traded in the world.

It’s ironic that with their scale, they are almost invisible. They don’t have brands. They avoid the limelight. Few have heard of them and, yet, they have always been there. Some of these companies are over 150 years old. They have grown slowly and steadily and, with Asia fuelling a greater demand for feed, their future has never looked brighter.

The ABCD companies are juggernauts with a scale and size that make it almost impossible for a newcomer to challenge them. For example, their reach extends from the fields in Brazil, Argentina or the US to the global financial markets, where they trade on the futures markets, and to everything in between.

At their core, the ABCDs are traders. But they also store, transport and process bulk commodities that include wheat, oilseeds, corn, soya and sugar cane.

Their business model is extremely capital intensive and they have invested billions in infrastructure. Regardless of the price of grain from one year to the next, profitability for the ABCDs is linked to volume. They need to get the economies of scale to ensure their network of grain elevators, rail cars, barges and ocean ships keep busy. It’s when these machines are sitting idle that they begin to lose money.

Armed with their knowledge of what supply and demand is likely to be, they have also established extremely profitable financial divisions that use their market expertise to sell to investment funds.

Trading

Commodity trading has always carried a high level of risk because of the range of factors that can affect prices, including currency fluctuation, natural disasters, crop failures and political or economic instability. To manage this risk and volatility, traders use futures exchange markets.

Today, commodity prices are increasingly influenced by factors that have nothing to do with crop yields or cereal demand as hedge funds and pension funds seek exposure to commodities in their investment portfolios.

Although farmers can still hedge a price for themselves each year, these new forms of fluctuation linked to financial markets are of no benefit to producers. However, they have greatly benefitted the ABCD companies.

The long histories of these companies, coupled with their exceptional economic might, suggest that they are relatively secure in their market positions. After all, the world will need more food in the coming years and they play a critical role in the food supply chain.

However, one of the greatest challenges which these companies face is their ability to source capital.

The finance required to maintain their positions is huge. ADM and Bunge have been publicly traded companies for many years now so they have been able to raise finance from the markets.

Cargill and Louis Dreyfus remain privately owned and speculation is rife that Dreyfus may be preparing for an initial public offering or at least a partial public offering in the near future.

Retail sector

The transformation of the global food retail sector is also a major threat to the ABCDs. Companies like Nestlé, Kraft, Tesco and Walmart have all started moving further down the food supply chain as they seek to ensure food safety and consumer confidence.

Another major threat to the ABCDs is the shift in the balance of economic power from west to east. The ABCDs have thrived in recent times, largely due to the free-market policies implemented by the dominant US and EU authorities.

However, emerging economic powers, such as the BRIC states, are in greater favour of tighter trade laws to allow indigenous businesses to compete. COFCO, the Chinese state-owned agribusiness, is widely seen as one of the few companies that could rise to challenge the ABCDs.

As the global population continues to expand, we can be certain of one thing; more food will have to be produced to feed the world. Operating in a critical link of the food supply chain, these powerhouse traders are perfectly positioned to capitalise on this growing demand.

They have the scale, knowledge, experience, resources, capital and infrastructure needed to continue their market dominance of the grain-trading sector that makes it extremely difficult for a new competitor to viably challenge them.

Cargill

Cargill transports 185 million tonnes of commodities and, at any one time, has 450 vessels sailing the world’s oceans.

Cargill’s revenues reached $136.7bn last year, resulting in profits of $2.31bn. Founded in 1865, Cargill employs 142,000, operates 245 silos, 28 export/import elevators, 62 crush plants and runs palm oil plantations. Cargill owns the largest grain elevator in North America, which can hold 440,000t of grain.

ADM

Founded in 1902, ADM is the second largest of the ABCDs. With 470 sourcing facilities and 270 processing plants, it can process in excess of 275,000t per day, including 164,000t of oilseeds and 36,000t of wheat. It has locations throughout the US, Canada, the Caribbean, Central America and the UK.

ADM runs 2,500 barges, 27,400 rail cars, 600 trucks, 1,300 trailers and 52 ocean-going vessels.

In 2013, revenues reached a collosal $90bn, with earnings of $2bn. It has 31,000 employees.

Bunge

Bunge traded 160m tonnes last year. This included 137m tonnes of cereals, oilseeds, soya and corn, 10m tonnes of sugar and bio-energy and 1m tonnes of fertilizer. It operates over 400 facilities in 40 countries and employs over 35,000 people. The public company is 195 years old.

Last year, it made profits of $3bn on revenues of $61bn. Bunge entered the global sugar market in 2006 and now processes 21 million tonnes of sugarcane per year. Supply mainly comes from the company’s own farms, Bunge owns approximately 7,800ha and manages a further 228,000ha.

Louis Dreyfus

Dreyfus trades 77m tonnes of commodities annually. It had net sales in 2013 of $63.6bn and a net income of $639m. The company is 163 years old and was founded in 1851 in Alsace, France. It employs 22,000 people. Last year, it committed to investing, on average, $800m annually over the next few years.