Hunting the Margin: Pre- & Post Covid-19 Update – Strategic Implications of Continued Low G&O Handling and Processing Margins

Some key grain & oilseed (G&O) companies’ margins have improved since our 2017 report. This success can only partly be attributed to margins from the typical handling and processing of grains, as the strategic shifts taken by companies in recent years have played a major role. “G&O companies’ heavy focus on strengthening their core through operational excellence, cost savings, and divestments of non-core businesses, as well as their continued expansion into value-add, downstream segments, and/or new markets benefited the overall company performance,” according to Stefan Vogel, global strategist – grains & oilseeds.

What's the impact?

1) Thin margins in G&O processing will continue. But the effects of Covid-19 show that the majority of the industry delivers those margins relatively reliably in times of crisis, which may generate more interest from outside investors.

2) Further consolidation in the global G&O chain may be driven by outright acquisitions or by more joint ventures and collaborations along the chain to build needed capacity, control overcapacity, and/or reduce risk per company.

3) G&O companies will continue to grow beyond their traditional sector into higher value-added businesses and/or emerging markets, but it will be an evolution in most cases rather than a revolution.

4) Covid-19 will impact margins and demand in the short- to medium-term and will likely also result in liquidity issues for some (likely smaller, non-diversified, or local) companies, raising counterparty risk, but potentially also providing consolidation opportunities.