March 1, 2012

 

Noble Group revamps cotton operations

 

 

After a spike in defaults, Noble Group was still working on a revamp of its cotton operations, as it unveiled a second quarter of low margins at its agriculture division.

 

The mining-to-grains giant said it was working "with counterparties to reorient the [cotton] business" which, like many rivals, saw farmers renege on delivery promises as prices soared early in 2011, and buyers walk away from contracts as values tumbled later in the year.

 

International Cotton Association watchdog, which in 2011 received a record 242 requests for arbitration over claims of unfulfilled cotton deals, last month added a further 11 companies to the list of those deemed to have reneged on deals.

 

Noble's efforts come amid a drive to reshape its agriculture division, which last year gained approval for a Singapore listing, over which further progress has not been announced.

 

The group earlier this month revealed Jose Luiz Glaser, a former Cargill manager, as chief executive of the division, named Noble Agri, with two other former employees at the US crop trading giant made heads of the soft commodities, and of grains and oilseeds sub-divisions.

 

"We continue to explore how best to extract capital from this business amidst a range of options, and will keep the market abreast of any material change in status," Richard Elman, the Noble Group founder and chairman, said.

 

The agribusiness division, while seeing revenues rise 23% to US$4.09 billion in the last three months of 2011, suffered a 68% drop in operating profits to US$113.9 million.

 

Many crop trading companies, such as Glencore's farm business and Cargill, have found market volatility largely based on political rather than fundamental factors, difficult to negotiate.

 

Noble's agri group saw its operating margin fall to 2.8% from 10.9%, if showing an improvement from the 1.2% in the July-to-September quarter, when the unit's weak performance helped land the group with its first quarterly loss in more than a decade.

 

In grains and oilseeds, "crush margins were generally weak, and in some cases negative, throughout 2011", Noble said.

 

However, the group used hedges "to take advantage of arbitrage opportunities".