Boar Hunter Sights China After MF Global Buy: Commodities

China's Vice President Xi Jiping
Xi Jinping, vice president of China. Photographer: Tim Rue/Bloomberg

Pete Nessler has bagged everything from a wild boar to a 280-pound white-tailed deer hunting in Iowa. He’s now aiming to tap China’s need for raw materials.

INTL FCStone Inc., where the 54-year-old Midwesterner is president of the commodity unit, will hedge part of the $6.7 billion of soybeans that Chinese customers agreed to buy during Vice President Xi Jinping’s visit to the U.S. last month, which included a stop in Des Moines. The New York-based company wants to expand the Asia-Pacific region’s share of revenue fivefold from 4.4 percent now, Nessler said, visiting his office on the 52nd floor of a skyscraper overlooking the Strait of Singapore.

“We’ve made this part of the region an integral part of our thought process and expansion,” said Nessler, whose home is decorated with the heads of 18 animals from antelope to rams. “When you had the Chinese vice president going from Washington and bypassed everywhere else and ended up in Iowa, that made people in Iowa feel very good as it’s a big part of the agricultural trade with China.”

At stake are the fees that come from serving China, the biggest consumer of everything from soybeans to pork to cotton and the buyer of $20 billion of U.S. farm goods last year. The U.S. Department of Agriculture is leading what Secretary Tom Vilsack is calling its biggest-ever trade mission to the nation later this month, seeking to bolster the record $136.3 billion of agricultural exports made worldwide in 2011.

Soybean Contracts

INTL FCStone hosted about 40 people from the Chinese delegation during a dinner given by Iowa Governor Terry Branstad on Feb. 15. The 650 attendees were served a menu that included bacon, lettuce and tomato canapes, bacon-wrapped pork tenderloin and apple pie cupcakes with maple-syrup frosting.

Three of the Chinese firms in the delegation, existing customers of FCStone, were among those signing the soybean agreements reached in Iowa, Nessler said. The company is advising them on how to hedge prices and manage risk from when the soybeans are bought to their delivery in China, as well as controlling freight costs. That includes the use of futures and options traded in Chicago and on the Dalian Commodity Exchange.

For INTL FCStone, China is an opportunity to diversify its business beyond North America, which represents 73 percent of revenue. The company had already expanded in Europe before buying the London Metal Exchange unit of MF Global Holdings Ltd., the broker-dealer that filed for bankruptcy, in November. Traded on Nasdaq, where its market capitalization is $420 million, INTL FCStone handled $75 billion of physical trade in oilseeds, grains, cattle and metals last year, data on its website show.

Wen Jiabao

The drive to win more business in China comes amid slowing expansion in the world’s second-biggest economy after the U.S. Premier Wen Jiabao lowered the annual growth goal to 7.5 percent in a state-of-the-nation speech March 5. While that’s the lowest since 2004, it’s a sign the ruling Communist Party wants to shift growth toward consumption and away from exports.

China’s population of 1.34 billion will consume 27 percent of the world’s soybeans this year, 22 percent of its corn and 50 percent of its pork, USDA estimates show. Growth of 7.5 percent would still be more than twice the 3.3 percent anticipated for the global economy this year by the International Monetary Fund. Soybean futures have climbed 9.9 percent this year in Chicago, and corn is down 1.2 percent.

“It’s a good time for companies to push into China,” said Nicholas Zhu, head of macro-commodity research for Asia at Australia & New Zealand Banking Group Ltd. in Shanghai. “Having a trading unit that can access futures exchanges here is not to capture the latest pessimistic turn of things, but rather an investment for the next phase.”

Shanghai Futures

INTL FCStone opened its fourth Asia-Pacific office in Shanghai last year, trading physical metals as well as agricultural futures on the Dalian Commodity Exchange. The company may also get access to the Shanghai Futures Exchange this year, Nessler said. The bourse is the nation’s second-largest after Zhengzhou, China Futures Association data show.

The firm, which traces its origins to an egg-selling venture founded in Chicago in 1924, is expanding at a time when Zurich-based Credit Suisse Group AG, Switzerland’s second-largest bank, and Natixis SA, the investment-banking and asset-management unit of Paris-based Groupe BPCE, plan to cut their commodity businesses.

Archer Daniels Midland Co., the world’s largest grain processor, said Feb. 21 it would cut 1,200 jobs as the Decatur, Illinois-based company reduces costs. Cargill Inc., a Minneapolis-based grain trader and the largest closely held U.S. company, said in December it would eliminate 2,000 positions.

West Des Moines

Nessler, based in West Des Moines for three decades, became president of FCStone LLC in October 2010 and oversaw four acquisitions since then. MF Global’s LME unit, comprising 55 people, was bought for an undisclosed amount and came with a seat on the trading floor of the world’s biggest metals bourse, alongside JPMorgan Chase & Co., Barclays Plc and nine others.

INTL FCStone posted a loss of $2.4 million on a marked-to-market basis in the three months ended Dec. 31, the first quarterly loss since 2008. The company prefers that measure rather than generally accepted accounting principles partly because it reflects changes in the value of commitments to future commodity transactions. Its shares fell 6.8 percent this year and were little changed in 2011.

The company has more than 20,000 clients across 100 countries, and trades solely on their behalf, said Nessler. The number of customers has doubled in two years as the workforce rose 70 percent to more than 1,000, he said. INTL FCStone may add rubber trading if it can find the right team, Nessler said.

‘Millions and Millions’

Among his first clients was Brad Davis, chief executive officer of Gold-Eagle Cooperative, a firm based in Goldfield, Iowa, that trades as much as 40 million bushels of corn and soybeans a year and operates an ethanol plant with annual output of 60 million gallons.

“You always know where he stands,” Davis said. “Trust is very important in this business. Millions and millions of dollars of business that’s conducted verbally, at least initially, so you need to have tremendous trust in the individuals and the company you are doing your business with.”

Nessler also oversaw the acquisition of Hencorp Becstone Futures LC, London-based Ambrian Commodities Ltd., and CoffeeNetwork, a news and analysis website. INTL FCStone said in December that it was in negotiations to buy London-based TRX Futures Ltd. About 65 percent of the group’s revenue comes from commodities. Other areas include foreign exchange and equities.

The Midwesterner’s parents were from Yugoslavia and Romania and came to live in Chicago during World War II. He gained a degree in agricultural industries from the University of Illinois before trading soybeans at AGRI Industries in West Des Moines. He also has a 250-acre non-commercial farm growing corn and soybeans.

“Agriculture back then wasn’t a very sexy world to get into,” Nessler said. “I am lucky enough to have the foresight to realize that at the end of the day, there’s a certain thing that people couldn’t live without, and that’s food.”

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