Glencore targets agriculture expansion amid losses

 

 

Despite affirming big losses in the agriculture division, and facing the need to deploy resources to seal its mega-bid for miner Xstrata, Glencore was "in a phase of considerable targeted expansion" in agriculture.

 

The mining-to-sugar giant, while restating that its agriculture division had run at an operating loss of US$47 million in 2011, said that the business would see "enhanced scale and performance going forward".

 

The group revealed that the first phase of its US$322 million, five-year plan to expand its Rio Vermelho sugar operation in Brazil would open in mid-2012, with an Argentine soy crushing facility also set to open by the end of June.

 

"Our agricultural asset portfolio is currently in a phase of considerable targeted expansion and development," Glencore said.

 

The group's slip into the red last year - from an operating profit of US$717 million in 2010, and despite a 64% jump to US$17.1 billion in revenues reflected largely problems in two areas, biodiesel and the "key negative" of cotton.

 

Glencore, one of a series of cotton groups to suffer as jump and slump in prices prompted first growers, and then mills, to default on deals said the industry was now "undergoing a review" over issues such as pricing and contracts.

 

"Extreme market volatility produced an outcome of ineffective hedging due to dislocation of physical and paper markets, and high levels of physical contractual non-performance by suppliers and customers," the group said.

 

A year of "enormous challenges" in the cotton industry had coincided with Glencore expansion in cotton, with its volumes sold soaring 150% to 500,000 tonnes.

 

On biodiesel, in which European producers face a squeeze from elevated rapeseed prices and a EU retreat on consumption mandates, the market was still difficult.

 

While Glencore chief executive Ivan Glasenberg said that "thus far in 2012, market conditions have improved, and the year has started well across all segments of our business", the group acknowledged that "the outlook remains challenging" in biodiesel.

 

The company, which in June mothballed its Schwarzheide plant in Germany because of the poor margins, reported biodiesel production down 32% at 569,000 tonnes for 2011.

 

However, Glencore's agricultural volumes rose overall, by 52% to 6.56 million tonnes, boosted by acquisitions in wheat milling and oilseed processing, and the impact of better weather in the former Soviet Union on Glencore's farming operations.

 

"The [farming] business performed reasonably well due to favourable weather conditions and large crops," rising output by 41% to 867,000 tonnes, the company said.

 

The comments came as Glencore formally reported results showing a 6.9% rise to US$4.06 billion in underlying earnings for last year, on revenues up 28% at US$186.2 billion.

 

However, the data were overshadowed by the group's ongoing US$37 billion bid for miner Xstrata, some of whose shareholders have threatened to vote against the deal unless the terms are improved.

 

Glasenberg said the deal was a "fair" one "to all shareholders".

 

Glencore shares closed 4.0% lower at 403.35p in London.