Cargill reports lower Q1 profit amid slumping grain markets

(Dave Bedard photo)

Chicago | Reuters — Cargill, a top global commodities trader, said Tuesday its quarterly earnings fell as global grain and oilseed prices tumbled in anticipation of a record-large U.S. harvest and as turmoil in some countries impacted its operations.

Minneapolis-based Cargill noted its fiscal first quarter ended Aug. 31 was “marked by a great deal of geopolitical uncertainty,” including inflation in Venezuela and Argentina, violence in eastern Ukraine, and tightening credit markets in China.

Rival grain trader Louis Dreyfus last week also blamed geopolitical turmoil for disappointing quarterly results. The two companies, along with Archer Daniels Midland and Bunge, make up the “ABCD” companies that dominate the global grain trade.

Privately-held Cargill reported net earnings of $425 million in the fiscal first quarter ended Aug. 31, down 26 per cent from $571 million in the same quarter a year earlier (all figures US$).

Revenue fell nearly two per cent to $33.3 billion, from $33.8 billion a year earlier.

Returns from Cargill’s origination and processing business, its largest segment, slipped as farmers held back grain sales amid tumbling prices and the lower commodity markets volatility made it difficult for the company to generate trading profits.

Benchmark corn futures prices tumbled 23 per cent in the quarter and soybean prices fell 27 per cent in the quarter as largely ideal crop weather in the U.S., the world’s top producer and exporter, fuelled expectations for a record harvest.

Cargill said it was poised to benefit from replenished grain supplies as the harvest advances in its second quarter and as lower grain prices attract demand.

“This year’s big crops, not just in North America but across agricultural production areas worldwide, will enhance food security after several years of weather disruptions. Our company is well positioned to connect these new supplies to growing demand,” CEO David MacLennan said.

Cargill blamed lower profits in its food and ingredients business on weak economic conditions in several countries, but said strong demand for corn-based biofuel ethanol supported its North American processing operations.

A bright spot for Cargill in the quarter came from its animal protein businesses, as lower grain prices cut cattle feed input costs and the shortage of hogs due to a deadly pig virus in the U.S. was lower than expected. Strong consumer demand and historically high meat prices further bolstered returns.

Profits in energy rebounded after two weak quarters and a revamp of its trading unit, but Cargill reported weaker results from ocean freight trading and metals as tighter Chinese credit markets hurt demand for iron ore and steel.

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

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