Rising grain prices fuel takeover scene

The food sector in the United States is is poised for consolidation as booming commodity prices squeeze earnings for some and drive profit for others, say investment bankers for Canada's Bank of Montrea.

Scott Humphrey, head of the bank's U.S. mergers and acquisitions group, said: "The availability of credit today is certainly helping in general dealmaking activity across a number of sectors."

The case for consolidation is strong in the midmarket food and agribusiness sector.

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Prices for grains are surging, helped by rising demand for grain-fed meat from the middle classes in India and China and crop production problems globally, including a drought in Russia.

US corn prices are near two-year highs even as the third-largest crop on record fails to meet demand from exporters, livestock feeders, foodmakers and ethanol firms.

Now players at all ends of the spectrum are positioning themselves for the agri-boom, a fact made plain with the now-stalled $39bn bid by the world's largest miner, BHP Billiton, to take over Canada's Potash Corp and gain control of a key crop nutrient.

Canada blocked the deal, highlighting the strategic importance of control of the global food supply chain.

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Charles Adair, a vice chairman for BMO Capital Markets and a veteran of the food and agribusiness marketplace, said: "Food has got a particularly interesting fundamental dynamic that has been developing globally in terms of food availability.

"The expectation in the space is that it is going to stay that way for a while, and that has an impact on most business models. Some of them are winners and some of them are losers."