(Updates with comments from Cargill and analysts)
By Tom Polansek
CHICAGO, April 8 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
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
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
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
(Reporting by Tom Polansek; Editing by Lisa Von Ahn; and Peter