Cargill profits slump, grain sector hit by 2012 drought

Reuters

By Christine Stebbins

CHICAGO, Oct 9 (Reuters) - U.S. agribusiness giant CargillInc on Wednesday reported a 41 percent drop inquarterly profits as the lingering effects of the 2012 severedrought in the United States reduced grain-handlingopportunities.

The company struggled with razor-thin inventories in theworld's top farm exporter, which kept grain pricey and loweredprocessing volume and export demand during the summer months.

Minneapolis-based Cargill, one of the world's largestprivately held corporations and a top commodities trader,reported $571 million in net earnings for the first quarterended Aug. 31, down from last year's record quarter of $975million.

First-quarter revenues of $33.8 billion matched the year-agoperiod.

"Our agricultural supply chain and food ingredientbusinesses were focused on helping customers and the company tosuccessfully manage their raw material purchases and inventoriesduring the market uncertainty that precedes the transition tonew crops in the northern hemisphere," Cargill's CEO Greg Page,said in a statement.

A big U.S. corn and soybean harvest now under way isexpected to replenish supplies, thus boosting export prospectsand processing volumes for Cargill as well as rivals such asArcher Daniels Midland and Bunge. ADM and Bungealso reported disappointing earnings for the quarter ended June30 tied to short corn and soybean supplies. Both will reportquarterly earnings in the coming weeks.

U.S. exports for corn, wheat and soybeans for the quarterended Aug. 31 were down nearly 30 percent from a year ago,dragged lower by corn and soy shipments, according to data from the U.S. Department of Agriculture.

"We were dealing with dwindling corn and soybean stocks andstrong immediate demand for cash grain, and in North America,gyrations in the weather which really made the harvestexpectations difficult to ascertain. All of that caused themarkets to invert," said Cargill spokeswoman Lisa Clemens.

"When you're looking at inverted markets, where your nearbyprices are much higher than more distant contracts, you have todo an excellent job managing your purchases and yourinventories," Clemens added.

Quarterly results fell in three of four business segments.Cargill's animal protein unit - which had been under stress inthe past year amid a 60-year low in the U.S. cattle supply andhigh feed costs - posted a rise due to improved margins, thecompany said.

While earnings fell in the company's grain origination andprocessing unit, it was the largest contributor to first-quarterresults.

"The segment's South American-based supply chains performedwell, utilizing the region's big crops to serve strong exportdemand. Conversely, in North American farm services, theremaining impact of last year's severe drought in the U.S.Midwest reduced grain handling opportunities in the firstquarter," Cargill said.

The company's food and ingredient earnings weredisappointing and its energy business, which includes trading inpetroleum, coal, power and gas, declined. Despite the poorperformance, Cargill plans to expand their energy business toinclude more physical trade.

"Cargill looks long-term and understands the markets arecyclical, and in this instance we had the combined effects ofmild weather, soft demand, low market volatility, so we did nothave good performance. But our decisions are made on manyfactors beyond immediate or most recent performance," saidClemens.

Asked about the rumored sale of ADM's cocoa business valuedas much as $2 billion, Clemens would not comment.

Cargill's size and scope continued to expand in the 67countries it operates and employs 143,000 people. The companysaid its acquisition of Joe White Maltings in Australia wasexpected to be completed by year end. Cargill also purchasedfull ownership of the Prairie Malt joint venture in Saskatchewanand acquired a shrimp feed manufacturer in Thailand.

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