Agricultural commodities

Gluten free: one of 3 trends shaking up commodities

Big agricultural traders are having to grapple with new consumer appetites

Consumer food trends are shaking up commodity markets

Emiko Terazono APRIL 7, 2017

Gluten-free food, the “war on sugar” and the resurgence of butter are three consumer trends
changing what ends up on supermarket shelves.

They are also posing challenges for commodities producers and traders who historically have
had to worry only about production and overall supply, rather than appetite for foods
perceived to be healthier or “natural”.

With grains and sugar having uses beyond food, and the trends largely limited to the US and
Europe, the overall effect on prices has been clearer in some markets than others. However,
“Big Ag”, as the world’s largest agricultural traders are known, are already responding.

“Revenues for organic, gluten-free and non-GMO [genetically modified] foods are up
sharply,” says Cargill, the largest privately owned company in the US, which is looking at
investing more in specialty products with high growth potential.

Rising demand for gluten-free products is not the first to squeeze US wheat consumption: the
popularity of the Atkins carbohydrate-free diet first did that in the early 2000s. After peaking
in 1997 at 147lbs, US per capita wheat consumption has declined to 133lbs in 2015, according
to the US Department of Agriculture, which is expecting it to have fallen again in 2016.

“Reduced per capita wheat food use in the US has been attributed to rising consumption of
gluten-free or multi-grain products and diet trends,” says Jennifer Bond, an analyst at the
agriculture department.

Gluten-free products have been around for years for people suffering from coeliac disease.
However, demand has now widened beyond medical needs. “The market started to grow
beyond people who were just needs-based and into a lifestyle choice,” says Michael Detlefsen,
managing director of Pomegranate Capital in Toronto, a private equity company with an
investment in a gluten-free food manufacturer.

Innovation has made gluten-free foods more palatable, helping boost the sector’s profile. The
global gluten-free retail market has grown from $1.7bn in 2011 to $3.5bn in 2016 and is
forecast to grow to $4.7bn in 2020, according to Euromonitor, the consumer data group.
As food manufacturers and retailers increase their offerings of “free from” foods such as
gluten-free and organic, some leading agricultural traders are betting that the trend is here to
stay. Archer Daniels Midland, which is based in Chicago, last year acquired a high-protein,
gluten-free pasta maker called Caterina Foods, which uses flours derived from lentils, peas,
rice and quinoa along with other grains and legumes.

“The growth trends for gluten-free products continue to look promising,” says Ken Campbell,
the president of ADM’s speciality ingredients unit, North American division, who adds that
the purchase allows the company to innovate by combining pasta with natural flavours,
colours or complementary ingredients in its portfolio.

In the dairy sector, swelling demand for natural ingredients has pushed the butter price to
record highs in Europe. Health authorities have reversed advice that consumption of animal
fats leads to heart disease. Instead, trans-fats, found in processed foods such as margarine,
are now considered a health risk, prompting consumers to switch to butter.

“Demand for butter has been very high and cheese has also made a comeback,” says Kevin
Bellamy, an analyst at Rabobank.

Butter prices in Europe, for example, are trading at record highs of just under $5,000 a
tonne. On the other hand, there has been an excess of low-fat milk powder — a byproduct of
the butter-making process — that has forced the price of skimmed milk powder lower.

The push for healthier diets is leading to jitters in the sugar market. Health campaigners and
governments’ efforts to control obesity levels are also adding to the worries at a time when
sugar prices are trading at just under 17 cents a pound, down a third from the four-year high
touched in 2016.

“When you have the big food and drink manufacturers saying they will use less sugar, you
would guess people are going to consume less sugar,” says Robin Shaw, an analyst at
commodity brokers Marex Spectron.

Although demand in North America and Europe, where the anti-sugar sentiment is strongest,
accounts for less than 15 per cent of world consumption, analysts say it has shaken
confidence in demand growth.

Traders and industry executives feel that the world consumption is still growing “but by only
about 1 per cent instead of the 2 per cent by which it had been growing in the last 20 years”,
says Mr Shaw.

FT Health
Back in the wheat industry, it is acknowledged that the gluten-free trend, like the shunning of
sugar, remains a phenomenon confined to developed economies. Wheat consumption
remains strong in Asia, where the growth of bread and confectionery markets is robust.

However, Maria Mascaraque, an analyst at Euromonitor, points out that emerging markets
tend to follow developed countries in food trends. “It’s growing in places like Brazil,” she
notes.

Currently trading at around $4.27 a bushel, wheat prices are being shaped by strong
production from key growers such as Russia.

Mr Detlefsen of Pomegranate Capital insists that once food manufacturers succeed in

producing tasty gluten-free bread — at the moment it tends to be chalky and crumbly — the
effect on the wheat market could be substantial. “Bread is the holy grail. If someone could
make a gluten-free product with the taste and texture of bread, that could really hit wheat,”
he says.

Copyright The Financial Times Limited 2018. All rights reserved.

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