Hedge Fund Buys another Grain Business

ConAgra CEO Gary Rodkin

A number of concerns has led ConAgra Foods Inc. (NYSE: CAG) to sell off their grain business to hedge fund Ospraie.

One of the concerns came from ConAgra shareholders, who have been expressing concerns over the long term impact the extremely volatile trading business would have on ConAgra.

ConAgra CEO Gary Rodkin said the sale will help the company return its focus to its core food operations, while addressing shareholder anxiety over the trading business.

While the commodity trading unit was very profitable for ConAgra during the commodity boom, the tremendous swings in the futures market made it a huge unknown at any one time for the business and its shareholders.

A related problem was the availability of credit to raise money to back margin calls, making it harder to protect their positions.

One grains trader approved of the deal saying about ConAgra, "They can control risk better now that they're just in the food business."

This is the second time this year a grain business has been acquired by a hedge fund, as earlier in the year Whitebox Advisors LLC bought a grain elevator in Minnesota from Cargill Inc.

Some thing this is the beginning of a trend that has opened the door to a flood of these types of deals.

The reason the hedge funds are going this way is to get a better sense of what the physical markets are really doing, so they can make more informed decisions on their trades.