By Christine Stebbins
CHICAGO Oct 9 U.S. agribusiness company Cargill
Inc on Wednesday reported a 41 percent drop in
quarterly profits as the lingering effects of the 2012 severe
drought in the United States reduced grain-handling
The company struggled with razor-thin inventories in the
world's top farm exporter, which kept grain pricey and lowered
processing volume and export demand during the summer months.
Minneapolis-based Cargill, one of the world's largest
privately held corporations and a top commodities trader,
reported $571 million in net earnings for the first quarter
ended Aug. 31, down from last year's record quarter of $975
First-quarter revenues of $33.8 billion matched the year-ago
"Our agricultural supply chain and food ingredient
businesses were focused on helping customers and the company to
successfully manage their raw material purchases and inventories
during the market uncertainty that precedes the transition to
new crops in the northern hemisphere," Cargill's CEO Greg Page,
said in a statement.
A big U.S. corn and soybean harvest now under way is
expected to replenish supplies, thus boosting export prospects
and processing volumes for Cargill as well as rivals such as
Archer Daniels Midland and Bunge. ADM and Bunge
also reported disappointing earnings for the quarter ended June
30 tied to short corn and soybean supplies. Both will report
quarterly earnings in the coming weeks.
U.S. exports for corn, wheat and soybeans for the quarter
ended Aug. 31 were down nearly 30 percent from a year ago,
dragged lower by corn and soy shipments, according to data from
the U.S. Department of Agriculture.
"We were dealing with dwindling corn and soybean stocks and
strong immediate demand for cash grain, and in North America,
gyrations in the weather which really made the harvest
expectations difficult to ascertain. All of that caused the
markets to invert," said Cargill spokeswoman Lisa Clemens.
"When you're looking at inverted markets, where your nearby
prices are much higher than more distant contracts, you have to
do an excellent job managing your purchases and your
inventories," Clemens added.
BETTER MARGINS IN MEAT BUSINESS
Standard & Poor's ratings analyst Chris Johnson said
Cargill's lower earnings were expected, given the strength of
earnings a year ago.
"We're looking at continued stabilization in their beef and
animal protein business. That continued to be the trend line,"
said Johnson, noting that S&P upgraded Cargill's debt rating to
stable last month from a negative outlook after its beef segment
showed signs of improvement last quarter.
First quarterly results fell in three of four business
segments. Cargill's animal protein unit - which had been under
stress in the past year amid a 60-year low in the U.S. cattle
supply and high feed costs - posted a rise due to improved
margins, the company said.
"We're looking to see cash flow generation to still be good
over this year, so we're not too concerned about inventories and
working capital resulting in higher debt balances," Johnson
While earnings fell in the company's grain origination and
processing unit, it was the largest contributor to first-quarter
"The segment's South American-based supply chains performed
well, utilizing the region's big crops to serve strong export
demand. Conversely, in North American farm services, the
remaining impact of last year's severe drought in the U.S.
Midwest reduced grain handling opportunities in the first
quarter," Cargill said.
The company's food and ingredient earnings were
disappointing and its energy business, which includes trading in
petroleum, coal, power and gas, declined. Despite the poor
performance, Cargill plans to expand their energy business to
include more physical trade.
"Cargill looks long-term and understands the markets are
cyclical, and in this instance we had the combined effects of
mild weather, soft demand, low market volatility, so we did not
have good performance. But our decisions are made on many
factors beyond immediate or most recent performance," said
Asked about the rumored Cargill purchase of ADM's cocoa
business, which has been valued as much as $2 billion, Clemens
would not comment.
Cargill's size and scope continued to expand in the 67
countries it operates and employs 143,000 people. The company
said its acquisition of Joe White Maltings in Australia was
expected to be completed by year end. Cargill also purchased
full ownership of the Prairie Malt joint venture in Saskatchewan
and acquired a shrimp feed manufacturer in Thailand.