Commodity broker takes full advantage of China's VP visit

Captures portion of $6.7 billion in Chinese hedging business

March 7 (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.

“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.”

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