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Bumper harvests return Cargill to profits growth

Cargill returned to profits growth, as much-improved North American harvests stoked demand for its marketing and handling services, but improvement was held back by overcapacity in the oilseed crushing industry.

The agribusiness giant, one of the world's biggest privately held companies, said that earnings soared 36% to $556m in the September-to-November period, "supported in part by 2013's improved crop production".

Cargill - whose profits the previous quarter were dented by a dearth of crop to handle after 2012's drought-hit US harvests said that farmers' better fortunes last year, when the US achieved a record corn crop and Canada record corn and canola output, had boosted the performance of its North American agricultural supply chain division.

"Profits increased due to higher grain handling and export volumes, along with renewed demand for grain marketing products," the Minneapolis-based group said.  

Lower costs

The lower crop prices prompted by the strong harvests had, besides being reflected in a 6.5% drop to $32.9bn in group revenues, helped margins at Cargill's grain consuming operations, "providing relief to Cargill's animal nutrition and protein segment".

Indeed, profits at feed and protein operations "rose significantly", thanks to the lower crop prices, a decline which, in meat production, "eased last year's high feeding costs".

Higher beef exports also boosted earnings, the group said, in comments which follow industry data showing US shipments in November rose 11% year on year by volume to 101,341 tonnes, and by value by 16% to a record $524.5m.

Cargill also flagged raised demand, both within the US and on export markets, for ethanol, whose manufacture has become more profitable sector thanks to last year's tumble in prices of corn, the main raw material, which dropped by 40% on Chicago's futures market.

'Build-up in oilseed crush capacity'

However, the group revealed that its agricultural supply chain division overall saw profits decline during the latest quarter, hurt by an excess of global processing capacity.

Cargill highlighted "an industry-wide build-up in oilseed crush capacity that reduced crush volumes in certain markets, including South America".

Companies expanding in oilseeds last year included Glencore, which reported a 38% rise in crushing volumes in the first nine months of 2013, after opening its Timbues plant in Argentina.

Meanwhile, Argentine farmers have been limiting the sale of crops which, in being traded in dollars, are viewed as a hedge against the country's long-running currency deflation.

Cargill itself has fuelled the rise in world oilseeds processing capacity by expanding a plant in North Dakota and beginning work on the construction of its first crushing facility, for sunflower seeds, in Russia.

'Firmer demand'

Cargill also highlighted a boost to its fortunes from the reviving cocoa market, noting "firmer demand and sales volume" for cocoa powder.

Improved demand for cocoa, which is expected to exceed production for a second successive season in 2013-14, helped  lift futures in the bean to two-year highs in London and New York last month.

Cargill is reported to be in talks to buy Archer Daniels Midland's cocoa division, valued by analysts at some $2bn.

Cargill last month unveiled plans to double capacity its biggest European chocolate facility, in Mouscron, Belgium.

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