Cargill profit falls as grain glut limits trading

(Dave Bedard photo)

Chicago | Reuters – Cargill Inc reported a 6 percent drop in quarterly profits on Wednesday as a global glut of grains limited trading opportunities for the food-commodities merchant.

Four years of bumper grain and oilseeds harvests have squeezed profits for Cargill and main rivals Archer Daniels Midland Co, Bunge Ltd and Louis Dreyfus Corp . Traders expect more of the same next year, prompting cost cuts.

Of Cargill’s four business segments, its unit that buys, trades and processes grains and oilseeds was the only one that saw quarterly earnings decline from a year ago. It was the eighth time in the past 14 quarters the unit posted a year-on-year decline, reflecting pressure from massive inventories, reduced price volatility and clipped margins.

“Very large U.S. corn and soybean crops added to the buildup in global stocks that has weighed on markets, diminishing price volatility and lessening trading opportunities,” spokeswoman Lisa Clemens said.

Trading performance in North America and oilseed processing in Asia stayed ahead of the same quarter last year, Cargill said. Still, the unit’s overall decline was offset by higher profits in the company’s animal-nutrition business, which sells ingredients for livestock and fish feed.

Cargill and its rivals have been investing in higher-margin businesses, such as food ingredients, to make up for the slump in their core grain trading and processing operations.

It said it invested about $1 billion during the quarter that ended on Nov. 30 on projects including a $90 million biodiesel facility in Kansas that will increase demand for U.S. soybeans.

Competitors are taking similar steps.

ADM has reconfigured an Illinois ethanol facility to produce higher-margin industrial and beverage alcohol and fuel for the export market. The company has also cut its global workforce and plans to reallocate funds to its high-value business from oilseed crushing.

Bunge fended off a bid from Glencore Plc last year and promised extensive cost-cutting in a sweeping restructuring.

“There’s nothing to be made from trade, that’s for sure,” said Jim Gerlach, president of Indiana-based grain broker A/C Trading.

Privately held Cargill said net earnings fell 6 percent to $924 million a year ago and adjusted operating earnings were down 8 percent at $948 million. Revenue rose 8 percent to $29.2 billion.

– Additional reporting by Karan Nagarkatti in Bengaluru.

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