October 12, 2012

 

 

As dire harvests returned to the top of food industry priorities, Cargill rebounded from its worst quarter in a decade to one of its best after being caught out by politically-swayed markets last year.

 

Cargill reported earnings of US$975 million for the June-August period, its best result since the tail end of the last grain price spike four years ago.

 

Indeed, Cargill earned nearly as much in the period as in the whole of its previous financial year, a factor chief executive Greg Page said reflected demand by customers for surety of agricultural commodity supplies at a time when poor weather has damaged harvests in the EU, former Soviet Union and US.

 

"Now more than ever Cargill is using our knowledge and market insight to help customers manage in this time of tighter supplies," Page said.

 

Cargill said that, overall, the impact of the US drought had been "mixed", providing setbacks to US crop exports, an important earner for the group, while setting up the group's meat production businesses "for a challenging year" as they negotiate elevated feed prices. However, all of the company's five major divisions achieved improved earnings in the latest quarter.

 

"There were no significant losses in any one business unit, a factor that affected the year-ago period", when its risk management operations were caught out by volatile financial markets.

 

And the company forecast a boost from the "atypical trade flows" forced by the poor harvests, a dynamic that "calls upon [Cargill's] capabilities in market analytics, risk management and logistics".

 

"We are tapping the full resources of Cargill to create solutions that address customers' needs," Page said.

 

The upbeat comments contrast with those a year ago, when Page reported a "tough quarter", with Cargill tested by the "degree of uncertainty in the global economic environment, which injected turbulence into commodity markets and limited prudent trading opportunities.

 

"The prevailing 'risk-on, risk-off' dynamic in financial markets caused capital to move in and out of commodities rapidly," said the group, which acknowledged the difficulty in negotiating agricultural markets moving on politically-based factors, such as the eurozone crisis, rather than conventional supply and demand influences.

 

The rise in earnings in the latest quarter came despite a drop of 2.3% in earnings to US$33.8 billion. It also follows a spending spree backed by proceeds from the disposal of its stake in fertiliser group Mosaic which has seen Cargill acquire businesses including feed giant Provimi.