Bloomberg: Freepoint Adds Cotton Business as Top Crop Traders Struggle

Freepoint Adds Cotton Business as Top Crop Traders Struggle
2017-09-19 04:01:00.4 GMT
By Alex Nussbaum

(Bloomberg) — Freepoint Commodities LLC is expanding into cotton trading and eyeing growth in sugar, grains and other farm products, as sliding prices help to upend the ranks of top agricultural traders. Freepoint has hired Crawford Tatum, formerly head of cotton trading for Cocfo Agri Ltd., to lead a new office outside Auburn, Alabama, Chief Executive Officer David Messer said in an interview Monday. The Stamford, Connecticut-based merchant house, which already trades coal, oil, metals and other commodities, plans to add at least five more employees to the office, Messer said. “We’re looking for areas to grow our company and the agricultural space fits a lot of the characteristics of what we are already doing,” said the CEO, whose six-year-old firm now has more than 400 employees worldwide, including more than 20 in agriculture. “It’s a natural extension to our existing business.”

The company is looking to expand even as bumper crops for grains and other products have driven down prices, complicating life for traders who depend on volatility to notch up big profits. Last month, six grain traders leftLouis Dreyfus Co. amid disputes over strategy. In February, Archer-Daniels-Midland Co. announced a 41 percent drop in earnings, fueled by losses from its global trading desk for wheat, soybeans and other foodstuffs. Unlike more established crop-trading houses, Freepoint hasn’t invested heavily in physical assets and operations, leaving it with less debt and more capital to devote to trading, said Victor Osle, the company’s newly appointed global head of agricultural products. That’s given the company an advantage in recruiting traders, he said in the interview.

Lighter Burden

“Many of Freepoint’s peers are still feeling the impacts of asset investments made at a different point in the cycle,” Osle said. “Freepoint is unburdened by such legacy assets.” Besides cotton, sugar and grains, the company also sees opportunities to grow in oilseeds, feed ingredients and ocean freight, said Osle, who’s based in London. He joined Freepoint last year from Cofco, the Chinese state-owned trader. Founded in 2011, Freepoint has grown as regulatory pressure has pushed Wall Street banks away from commodities trading and financial troubles beset rivals like Noble Group Ltd. and Engelhart CTP. Messer last year added a retail energy sales business, bulked up metals and energy trading in Asia, and opened its first crop trading office in Kansas. Messer and two fellow executives led Sempra Energy Trading’s growth from a $50 million firm in the late 1990s to $1.5 billion in annual revenue by 2005, according to Freepoint’s website. The business was sold to the Royal Bank of Scotland in 2008. Messer and his partners founded Freepoint with backing from private equity firm Stone Point Capital. The cotton market is contending with ballooning global supplies, fed by rising U.S. production and China’s plans to sell off reserves. Sales of synthetic alternatives like polyester are also on the rise. Messer nonetheless sees promise for Freepoint, which will focus on North American markets. Cotton futures traded in New York are up about 6 percent from this year’s low in July, but almost flat from the end of last year. “We still see an important merchant role in the cotton business in connecting growers with some of the mills, and also potentially exporting cotton overseas,” he said.

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