Glencore books ‘disappointing’ first half in grain business

The newest major player in Prairie agriculture reports a “lack of opportunities” in the grain business led to disappointing results for its first half of 2013.

Swiss commodity firm Glencore Xstrata, which completed its takeover of top Prairie grain handler Viterra in December last year, released its half-year results Tuesday. The company reported a “considerably” higher grain and oilseed handle, due mainly to the Viterra deal.

“Whilst our agriculture business has had a slow start to the year, much of the underlying performance was encouraging and the benefits of the Viterra acquisition are starting to materialize,” Glencore CEO Ivan Glasenberg said in his report.

Glencore reported total agricultural H1 revenues of US$16.07 billion, of which $14.6 billion came from marketing and $1.47 billion from related “industrial activities.” That’s up from US$9.446 billion in 2012 H1, in which $8.041 billion came from marketing and $1.405 billion from the industrial business.

However, Glencore’s 2013 H1 adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) came in at US$126 million, all but $3 million of which came from the marketing business. That’s down from US$146 million in EBITDA in 2012 H1, in which all but $21 million came from marketing.

Glencore’s ag marketing arm reported 2013 H1 sales of 21.9 million tonnes of grains, up from 14.6 million in its 2012 H1. Oilseeds and oils rose 79 per cent to 12.2 million tonnes.

Viterra’s integration “has proceeded relatively smoothly,” Glencore said Tuesday, expecting “full integration and ramp-up” to take place next year.

The company completed the sale of some of Viterra’s grain and processing assets to Winnipeg agribusiness Richardson International during H1, but still awaits federal approval on the sale of Viterra’s ag retail assets to Calgary fertilizer and retail firm Agrium. That approval is expected in the company’s third quarter, Glencore said.

Viterra’s crop procurement businesses in Canada and Australia “contributed in line with expectations,” Glencore said, noting the impacts of the “significant crop reduction” in South Australia in 2012.

Glencore’s port joint venture in Taman, Russia also sat idle for most of 2013 H1, since Russia’s 2012 grain crop “was not export-competitive.”

“Absence of problems”

More generally, however, Glencore said a “lack of old-crop carry charges and price volatility” left the company’s traders with “limited arbitrage opportunities.”

Oilseed and cotton results were “satisfactory,” but “grain results were disappointing due to the lack of opportunities.”

Looking ahead, Glencore said, where old-crop grain and oilseed prices held firm due to the 2012 U.S. production shortfall, held in check by “abundant” South American crops, new-crop prices have declined as the crop outlook has become more certain.

Even China’s wheat purchases have had little impact “in the face of large new crops,” Glencore said.

“In the absence of any significant crop problems anywhere, stocks, whilst not overly burdensome, will be replenished and the market looks likely to be amply supplied in H2 2013,” the company predicted. “The overall result has been a grain market which has been unprospective.”

On its ag wing’s industrial side, Glencore’s oilseed crushing and biodiesel businesses also booked a substantial jump in processed volumes, due to the addition of new plants in both Canada and Europe. Oilseed crushing volumes in H1 rose 40 per cent from the year-earlier period, while biodiesel production dropped three per cent.

Crush margins, however, were “generally poor” for most of the 2013 H1, in Canada as well as in the European Union, Ukraine and Argentina.

“Increased discipline”

Across Glencore’s various businesses, Glasenberg said, “the first six months of 2013 saw tentative signs that we may be entering a period of increased capital discipline within the (commodities) sector.”

The capital invested by commodity producers over the past decade, he said, “has dwarfed returns to shareholders.”

Thus the company is “currently focused on rationalizing the pre-existing capital requirements of the enlarged (Glencore Xstrata) entity,” Glasenberg said, noting Glencore’s completed takeover of mining firm Xstrata in May.

An example of such rationalization, he noted, is the sale of Viterra’s Australian malting business, Joe White Malting, to Cargill as announced earlier this month. That deal is expected to close by the end of the year. — Network

Related stories:
Cargill to buy Viterra’s Australian maltster, Aug. 6, 2013
Glencore said seeking buyer for Viterra’s U.S. pasta play, July 12, 2013
Richardson, CF close deals for Viterra assets, May 1, 2013
Glencore’s chosen Viterra chief makes fast exit, Jan. 7, 2013

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