Cargill’s Q2 profit drops amid commodities slump

(Dave Bedard photo)

Chicago | Reuters –– Slumping commodities prices and weak demand in some markets took their toll on profits for global commodities trader Cargill in the quarter ending Nov. 30, sending earnings and revenue down 13 per cent and 10 per cent, respectively.

Privately held Cargill, celebrating its 150th birthday this year, is in the midst of a restructuring aimed at transforming the company to be more responsive to commodities market swings.

In the latest of a growing list of weak earnings by agriculture-focused companies, Cargill’s lower results reported on Thursday suggest agribusiness rivals such as Archer Daniels Midland and Bunge are feeling similar pain, analysts said. Both rivals report quarterly results early next month.

“Given the low crop prices, farmers are resistant to sell right away after the harvest. There are also some other issues around the devaluation in Argentina and obviously things are slow in Brazil,” said Moody’s analyst John Rogers.

“It’s going to be a tough quarter for everyone.”

Minnesota-based Cargill reported lower year-on-year results in each of its four of its business segments.

Weak cattle feeding margins in North America and a thinned Australian cattle herd weighed down earnings from red meat, while the slumping Brazilian and Argentine economies dragged down profits for food staples in South America.

A milder-than-normal start to the winter in North America curbed earnings from products such as road salt and pressured prices of natural gas and power, which hurt energy trading results.

Earnings were further weighed down by losses stemming from liquidation of hedge funds managed by its Black River Asset Management subsidiary. Cargill is splitting the unit into three separate firms.

Cargill’s profit fell to $574 million from $657 million a year earlier while revenue declined to $27.3 billion (all figures US$).

The results excluded gains from the sale of its U.S. pork business in October for $1.45 billion and the $720 million sale of its 50 per cent stake in a U.S. steel mill venture as part of a broader restructuring plan.

Cargill launched a restructuring last year that could lead to cuts of as many as 4,000 jobs and closures of some offices. The company has also streamlined its management structure.

The moves come as companies across the agricultural economy tighten belts amid a steep commodities market downturn.

Farm equipment makers such as Deere and Co. have reported declines in sales of tractors and combines. Seed and chemicals company Monsanto said on Wednesday that the weakening farm sector would weigh on earnings in 2016 and lead to more job cuts at the company.

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

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