Cargill, the Dr Gloom of commodities markets

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Cargill has become the Dr Gloom of the commodities trading sector.

The Minnesota-based company was the first big trading house to warn about the economic slowdown; its latest quarterly results reflected a sharp drop year-on-year; and now it is firing 2,000 people due to the “continued weak global economy”.

This is no small matter: Cargill is at the centre of global trade, shipping commodities from wheat to beef, and the wide reach of its business network helps it anticipate changes in the economic cycle. Other top commodities trading houses – particularly Glencore and Noble Group – are, however, painting a much rosier outlook, offering a much more positive view both about the global economy and their businesses.

It is too early to say whether Cargill’s bearishness is justified. But it is worth noting that Cargill is a privately-owned company – still controlled by the MacMillan and Cargill families, descendants of the founders who set up the group in 1865 – so it does not feel obliged to put as brave a face on in a bad economic environment as its publicly-listed rivals.

Over the weekend, Cargill said it would reduce its 138,000 workforce over the next six months by roughly 1.5 per cent as part of an “overall effort to reduce expenses” due to weak economic growth.

“As economic conditions change, so must we,” said Mike Fernandez, corporate vice-president at the commodities trading house. The announcement comes after lacklustre financial performance in the first three months of its fiscal year. In October, the trading house said its net profit for the three months to August 31 fell a hefty 66 per cent from a year ago, to $236m.

Back in September, Paul Conway, Cargill deputy chief executive, said that the company felt that global economic growth was “weak and weakening”. He said: “We are going through a long, slow, anaemic, tough recovery”. The statement over the weekend indicates that Cargill’s view has not changed at all, further pointing to a global economic slowdown. Mr Conway indicated back in September that the problem was that the economic slowdown was not only affecting the US and Europe, but was then already spreading to several Brics countries – Brazil, India and China.

Investors in the global commodities trading sector should take note.

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