Cargill reports worst quarter since 2001

Family-owned and Minneapolis-based Cargill with a century-long history of dominating global grain markets, reported $100 million in earnings from continuing operations for its second quarter ended November 30, down 88% from $832 million a year earlier and the worst quarter since 2001.

 

Annual revenues rose 17% to $33.3 billion from $28.5 billion.

 

For the second time, the company singled out its trading operations as dragging down stronger earnings in its food and agricultural services divisions.

 

It said Europe’s debt crisis had walloped equity and distressed-asset trades in its hedge fund division, while sugar trading recorded a loss.

 

The company, which has announced plans to lay off 1.5% of its staff and seen its top sugar trader leave, is suffering alongside other commodity veterans including Goldman Sachs and Asia-based Noble Group that have struggled to profit amid a year of exceptional volatility.

 

"The second quarter was significantly below expectations, especially in contrast to last year when we posted our strongest quarter ever," Cargill Chief Executive Greg Page said in a statement. He said the company was working to cut costs and simplify work processes.

 

He said the meat business had "one of their weakest quarters" after a turkey recall, the third-largest meat recall in US history, and poor beef margins.

 

"Our food ingredients and agriculture services businesses generated solid earnings. At the same time, our commodity-based trading and asset management businesses faced significant challenges," Page said.

 

Concentrated on agricultural markets, particularly grains and oilseeds, Cargill’s commodity trading operation is one of the world’s largest. Last year, however, the firm appeared to rein in some of its desks, reorganizing coal and power/gas and quitting steel.

 

Cargill said its risk management and financial segment was hardest hit due to investments made in equity markets and distressed assets. That was an apparent reference to Black River, the hedge fund it operates with a global staff of 90.

 

"We were negatively affected by the stress in world financial markets, particularly with what was happening in October," Cargill spokeswoman Lisa Clemens said.

 

"It was a period when the markets were gyrating up and down sharply – coming from the debt crisis, from the exposure risk carried by the European banks, worries where the fallout would come. All of that made a difficult period for that business."

 

Chris Johnson, a credit analyst for ratings agency Standard and Poor’s, said Cargill was in a "cyclical trough".

 

Results fell in all five basic business units for the quarter.

Cargill’s food ingredients and agriculture services businesses had the strongest results. Its food ingredient business nearly matched year-ago record performance but Cargill’s meat unit was hurt by a smaller US fed cattle supply, which pressured beef margins.

 

Cargill’s results were also hurt by the recall last August of 18,000 tonnes of turkey and the related shutdown of its Springdale-Arkansas plant during the quarter. The plant reopened on December 19.

 

Cargill’s $2 billion acquisition of Provimi, a leading global animal nutrition company, was its largest in recent months and completed in November.