Cargill books higher profits, warns of tough markets

(Dave Bedard photo)

Reuters — U.S. agricultural commodities trader Cargill on Thursday reported a rise in third-quarter profit on stronger results in food ingredients and grain handling, but warned about headwinds from oversupplied grain markets and low commodity prices.

The privately-held company is exiting lower-margin operations, including its U.S. pork business, and expanding deeper into food ingredients and aquaculture to capture higher margins and capitalize on consumer trends. It is also in the midst of a corporate restructuring.

The refocus has begun to add to the bottom line, according to Cargill. The company did not give a detailed earnings outlook.

Several years of expanding global production have sent world grain stocks to historic highs and dragged prices to near five-year lows.

“Barring weather events, we don’t anticipate a near-term improvement in market conditions for agriculture. In these kinds of cycles, and we’ve been through them before, we focus on the levers under our control,” CEO David MacLennan said in a statement.

Although cheap grain allows Cargill and competitors including Archer Daniels Midland and Bunge to buy grain at lower prices for processing and export, low price volatility has hurt their grain trading units.

Cargill said net earnings rose eight per cent to $459 million for the fiscal quarter ended Feb. 29, from $425 million a year earlier (all figures US$). Revenue fell 11 per cent to $25.2 billion.

It said its food ingredients unit outperformed last year’s weak third quarter, noting stronger profits in edible oils, sweeteners and other ingredients.

Origination and processing earnings also increased on good oilseed processing margins. Higher corn exports from Cargill facilities in Argentina after the country enacted export reforms late last year partly offset a slowdown in U.S. shipments.

“Their origination and processing earnings have held up so far. We are expecting weak industry fundamentals there, particularly in oilseed processing and that might start to impact those earnings more meaningfully in the upcoming quarters,” said Chris Johnson, analyst with Standard + Poor’s.

“But at the same time, the company has made some recent acquisitions that will start flowing into their earnings, so that will be a bit of an offset.”

Struggles in the beef business dragged down earnings in its animal protein unit, as a strong dollar dented U.S. exports, while cheap pork and poultry weakened retail demand for beef.

Industrial and financial services followed a break-even second quarter with a loss as record-low ocean freight costs hurt transportation results and low oil prices dented energy trading.

Karl Plume reports on agriculture and ag commodity markets for Reuters from Chicago.

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