UPDATE 2-Cargill earnings hit by commodity market disruptions

Tue Apr 8, 2014 1:19pm EDT

(Updates with comments from Cargill and analysts)

By Tom Polansek

CHICAGO, April 8 (Reuters) - Cargill Inc said on Tuesday its quarterly earnings fell 28 percent, making it one of the largest companies yet to demonstrate how big commodity market disruptions this year have hurt its bottom line.

Minneapolis-based Cargill, a top global commodities trader, was hit by a triple-whammy of unexpected events, including a surge in energy prices in January, rail backlogs, and the rejection of U.S. corn shipments by China.

The problems are likely to have also hit Cargill peers such as Archer Daniels Midland Co and Bunge Ltd, which are due to report financial results in the coming weeks.

The coldest winter in 30 years catapulted regional U.S. natural gas prices to record highs, while power markets gyrated as producers struggled to keep supplies flowing to consumers. The harsh weather also snarled rail transport for products as diverse as coal, grain and ethanol.

"In North America, we had record harvests and this extreme weather, so that created a backlog," Cargill spokeswoman Lisa Clemens said about the rail disruptions. "We couldn't move grain or deliver products as fast as we would otherwise."

Cargill, one of the world's largest privately held companies, reported net earnings of $319 million for the third quarter ended Feb. 28, down from $445 million a year earlier. Revenue was $32 billion, nearly even with a year earlier.

A trading loss in U.S. power markets was related to an "unprecedented price spike" in late January, Cargill said. It added that part of the loss has been recovered but provided no details.

In February, the head of physical trading at Cargill's North American thermal energy arm left the company. Cargill was reported by an industry publication to have lost more than $100 million in U.S. energy markets.

Cargill said last month it would stop trading coal and dealing in gas and power in Europe, but denied the moves were linked to the U.S. loss.

The company's focus historically has been on grains and agricultural markets, rather than energy. ADM, Bunge, Cargill and Louis Dreyfus Corp make up the so-called ABCD firms that dominate agricultural commodities.

RAIL SLOWS DOWN

Cargill said earnings for its grain sector were down from a year earlier because of costs related to China's rejection of genetically modified U.S. corn. Further, there were generally "limited opportunities" in grain trading and storage, the company said.

Grain dealers have struggled to find empty railway cars amid competition with oil shippers for track capacity.

The surprise rejections by China were notable because it is important for Cargill to accurately assess the risks associated with counterparties in its transactions, said Chris Johnson, a credit analyst at Standard & Poor's.

"The fact that there is a bit of a counterparty surprise in the corn thing, that's the one that is more of an eyebrow-raiser," he said.

Johnson said he was confident Cargill's overall loss exposure was "well contained" and that the Chinese rejections were likely not material to the company's credit rating.

OUTLOOK FOR RIVALS

Cargill's comments about limited opportunities for grain handling were "somewhat surprising" and offer a mixed outlook for ADM and Bunge, said Ken Zaslow, analyst at BMO Capital Markets.

Cargill said export demand for beef was strong, which is a positive sign for meat companies Tyson Foods Inc and Hormel Foods Corp, Zaslow said.

Shares of ADM were down 0.9 percent at $43.20, while Bunge shares were up 1.7 percent at $79.73. Tyson Foods shares were up 0.2 percent at $41.20, and Hormel was down 0.6 percent at $47.77. (Reporting by Tom Polansek; Editing by Lisa Von Ahn; and Peter Galloway)