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OTTAWA (Reuters) - Global commodity trader Louis Dreyfus is gradually expanding its Western Canada grain-handling capacity, but is not looking to be active in mergers and acquisitions as the rich grain-growing region moves to an open market, said the head of its Canadian office.
The Canadian government plans to pass a law next month to end the Canadian Wheat Board's decades-old grain marketing monopoly in Western Canada, setting off a potential reorganization of its grain-handling and processing sector.
Privately held Louis Dreyfus, based in France, is a major global grain trader but holds just six percent of Western Canada's grain-handling market share, far behind the region's dominant players Viterra VT.TO, Richardson International Limited and Cargill CARG.UL.
Still, despite the lure of a bigger stake in the world's top shipper of spring wheat, durum and malting barley, Dreyfus is unlikely to make any big acquisitions, said Brant Randles, president of Louis Dreyfus Canada.
"(Company) valuations are very rich in Western Canada," Randles said on the sidelines of the Canada Grains Council conference in Ottawa. "In terms of (Louis Dreyfus) being a buyer of another company, I think that's unlikely. It's a mature basin in terms of production and the buildout of capacity."
The end of the Wheat Board's monopoly, scheduled for August 2012 if government legislation passes as expected, will allow grain handlers to buy directly from western farmers and let millers and maltsters build processing plants without buying supplies through the board.
Louis Dreyfus is adding storage space to two of its 10 Western Canada grain elevators and will look "selectively" to fill holes in its grain-handling network, but is not contemplating more sweeping moves, Randles said.
U.S.-based agribusiness company Bunge Ltd (BG.N) has said it plans to bolster its presence in the region after the monopoly ends.
Louis Dreyfus has been in flux since former head Robert Louis-Dreyfus died in 2009. He left his majority stake to a trust, and made a commitment that his heirs would buy out minority shareholders from 2012.
Group chairman Margarita Louis-Dreyfus confirmed in March she was holding talks with the company's minority shareholders about a stock market listing, a merger or bringing in a private investor to fund future projects.
Whether or not the Canadian grain-handling landscape is due for a shake-up, the end of the board's monopoly likely means other sweeping changes are in store, Randles said.
Private grain marketers are likely to want farmers to plant more mid-quality, high-yielding wheat because under the Wheat Board's control Western Canada currently produces too much top-grade wheat, Randles said.
As much as two thirds of Western Canada's spring wheat harvest - estimated at 15.4 million tonnes of total production for 2011/12 - falls into the top two milling grades in some years, but Randles said export and domestic market demand for top supplies usually amounts to no more than half of supplies.
As a result, some of farmers' top-quality wheat ends up sold to buyers who only need medium quality, he said.
"Why don't we target our production to our demand," Randles said.
The switch to an open market also brings challenges for grain traders like Louis Dreyfus. It owns no Western Canada port terminal space of its own and in an open market, will have to work out access agreements to terminals owned by its competitors, in order to ship grain to customers abroad.
Grain handlers will also need to pay more up front once they buy crops straight from farmers, meaning large or small, they will need more cash flow to participate.
Neither is an insurmountable challenge for Dreyfus, Randles said.
Editing by David Gregorio