Bunge overhaul is latest shake-up for struggling grain sector

By Karl Plume

CHICAGO, July 19 (Reuters) - Global grain trader Bunge Ltd's sweeping plans to overhaul its business and cut costs may not be enough to compensate for weak earnings and could still leave it vulnerable to a new bid from diversified rival Glencore PLC.

Bunge, the smallest of the listed global grains traders, rebuffed a bid from Glencore in May but its admission on Wednesday that second quarter earnings would disappoint has opened up the possibility that Glencore might make another approach, analysts said.

"To the extent that they underperform expectations, it's more likely that someone will look to acquire them or do some sort of transaction with them," John Rogers, senior vice president at Moody's, told Reuters.

If Glencore, whose market capitalization is more than five times Bunge's $11 billion, does make a second attempt and is successful, it would be the industry's largest shake-up in decades and redraw the global food supply chain.

"The Glencore bid has made companies across the agribusiness space look at their assets in a new light, with a focus on return on invested capital," said Farha Aslam, analyst with Stephens Inc.

Global grains trading has long been dominated by Bunge and its three main rivals - Archer Daniels Midland Co, Cargill Inc and Louis Dreyfus Corp. - who typically make money by buying crops locally from farmers and shifting them to global buyers. They own capital-intensive assets like warehouses, ships, barges and processing plants.

But the landscape has changed dramatically in the last four years as bumper harvests have kept grain prices low and crimped trading profits. The big four traders - known as the ABCDs - have taken steps to diversify, selling underperforming assets and buying businesses which offer higher margins.

STEPPING UP PACE

Glencore's move has stepped up the push for change and could herald a shake-up similar to the transformation of the agrichemicals industry, where six leading players are merging into three giants in deals totalling around $240 billion.

Dow Chemical Co and DuPont are merging, China's ChemChina will buy Syngenta AG and Bayer AG has snapped up Monsanto Co.

It was Bunge's own chief executive, Soren Schroder, who in May suggested consolidation among the grain traders was coming - and even said his company could lead it.

Glencore, best known in metals and energy trading, has so far been one of the most active players, setting its sights on expanding its agricultural commodities business. It pursued Louis Dreyfus' grains business in recent years, but failed to strike a deal.

The ABCDs are are also facing stiffer competition from players such as China's COFCO Group, which recently scooped up the agribusiness of Singapore-listed Noble Group and Dutch grain trader Nidera, and Japanese trading house Marubeni Corp , which bought U.S. grain handler Gavilon in 2012.

COFCO, however, is likely to sit out the industry consolidation as it integrates recent acquisitions.

Privately-held Cargill, the "C" of the big four, is two years into a restructuring and confident it can take part in the shake-up to come.

It launched a restructuring effort in late 2015 and has already sold $700 million of assets and made strategic investments of $1 billion, including fish feeding and chocolate. Its latest quarterly profit was sharply higher than a year ago, suggesting the changes are bearing fruit.

"If our profitability continues to perform well, we just create more room for acquisitions," Marcel Smits, Cargill's chief financial officer told Reuters.

(Reporting by Karl Plume in Chicago; Editing by Richard Pullin)