South America Calling

On Thursday, U.S. trading giant Cargill and Brazilian cooperative Copersucar announced they will merge their sugar export operations to create the world's biggest exporter.

At a time of extremely tight margins on sugar, the deal offers economies of scale to both parties.

However, it is a worrying development for sugarcane crushers without a relationship with either company.

Copersucar has a natural advantage over other international trading firms: It can source sugar directly from its 47 associate mills and 50 partnered mills in Brazil, utilizing integrated logistics. But market sources indicated that it was having increasing problems placing the sugar on the international market, leading to increased deliveries on the New York exchange. That is a problem Cargill doesn't have with its vast worldwide network. Over the last few years, Cargill has slowed its investments in sugar because of the tight margins, but the latest deal indicates the company has renewed focus on the area.

Regulators must now approve the deal, which does not include ethanol or domestic sugar marketing.

Two companies currently account for around 25% of the international sugar trade.

Brazil shipped nearly half of the 57 million metric tons of sugar exported last season.

The agreement is part of a consolidation trend in Brazilian agriculture over the last few years. Farms are getting bigger, while areas such as meatpacking are becoming extremely concentrated. The exception is grain exporting, where Asian trading firms have increased their Brazilian presence in order to source soybeans directly rather than going through the established international trading firms.

(AG)

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