October 10, 2011 4:03 pm

Cargill profits fall 66% on global turmoil

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Cargill, the world’s biggest agricultural trader, blamed rapid money flows in commodity markets and deep uncertainty over the global economy as it reported a 66 per cent decline in net profit.

The Minnesota-based company, with businesses from corn syrup to financial derivatives, said it earned $236m in the first quarter to August 31, down from $693m a year ago. Year-ago results excluded profit contributions from Mosaic, the fertiliser maker from which Cargill spun off its stake in May.

Revenue rose 34 per cent to $34.6bn from the same quarter last year, meaning privately held Cargill’s profit margins shrank. With commodities such as corn and oil steered as much by macroeconomic headlines as supply and demand, the company chose to risk less capital in trading strategies, a spokeswoman said.

The results could intensify investors’ focus on listed agricultural traders such as Bunge and Archer Daniels Midland, which report results October 27 and November 1 respectively. Cargill’s performance would also worry investors in Glencore, the world’s largest commodities house, which trades crops such as wheat and corn. The most recent fiscal year, which ended in May, was Cargill’s best ever with $4.24bn in earnings, including Mosaic’s contribution.

“It was a tough quarter. With results down from recent levels, we’re focused on regaining our earnings momentum,” said Gregory Page, Cargill chief executive.

Cargill attributed the poor earnings to the sweeping macroeconomic tides that have also wrongfooted stock pickers and hedge fund managers over the past few months. “Cargill has such an advantage in trading because they are involved in the physical markets. Even with that advantage, these results highlight the challenge of managing through these volatile markets,” said David Nelson, global strategist at Rabobank.

The company, with operations in 63 countries, said the macroeconomic uncertainty “limited prudent trading opportunities”. It added: “The prevailing ‘risk-on, risk-off’ dynamic in financial markets also caused capital to move in and out of commodities rapidly, which reinforced taking a disciplined approach to risk-taking.”

Four of Cargill’s five business segments reported lower performance, including the sprawling origination and processing segment that buys, sells and processes bulk agricultural commodities such as grains, cotton and sugar.

Cargill’s risk management and financial segment, which includes hedge fund group Black River Asset Management, suffered from “stress in financial markets caused by growing economic, fiscal and political concerns on both sides of the Atlantic,” Cargill said.

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