Glencore downplays Ukraine threat, as grains stall

Glencore downplayed the threat to its agriculture business from the Ukraine turmoil even as Russia appeared to reduce the risk of confrontation, putting the brakes on the wheat price rally.

Ivan Glasenberg, chief executive at the copper-to-canola commodities giant, said that while it was "hard to say right now" what the implications were of the march of Russian troops into Crimea in southern Ukraine, the group's agriculture business in the country was "not major".

"Exactly the ramifications, how it affects us, we've got to monitor," Mr Glasenberg told investors.

"On the grain side… it's a small part of our business. We don't have large assets in the Ukraine. It's not a large part of our book."

Oil caution

The comments follow assertions on Monday by Archer Daniels Midland and Bunge, Glencore rivals in the agriculture sector, that their Black Sea grain trading operations have yet to be affected by the Crimea crisis.

ADM said that "we haven't seen any significant impact to business and continue to monitor the situation", while Bunge said its Ukrainian operations were "operating normally".

However, Mr Glasenberg flagged the potential for Glencore's core oil business to feel the impact of the turmoil.

"Oil exports from Russia is an important part of our business. If anyone believes something is going to happen there, of course, that disrupts markets," he said.

"That kind of disruption could have arbitrage effects around the world. That's something we've got to monitor. The exact repercussions, I don't know yet."

Oil vs grains

Separately, Deutsche Bank downplayed the broader impact on grain markets from the turmoil, saying that while concerns of disruptions to Ukraine's spring plantings "could begin to escalate" if strife spreads north from Crimea, "for the time being, the attention is on the possible disruption from Ukraine's Black Sea ports.

"However, the main grain terminals in the Ukraine are not in Crimea, but in Odessa, Illichevsk and Yuzhne, some 325km to the west."

Grain prices on Tuesday failed to repeat their jump of the last session over concerns of disruptions to shipments from Ukraine and potentially Russia too, if the Crimea crisis escalated to trade sanctions.

With Russian president Vladimir Putin easing nerves, by saying that "the tense situation in the Crimea, associated with the possible use of the armed forces, just dissipated", wheat for May managed to extend its gains by only 0.4% to $6.44 ¾ a bushel, helped also by concerns over the condition of US seedlings.

Corn, of which Ukraine is the third-ranked exporter, was 0.6% higher in morning deals in Chicago at $4.73 ¼ a bushel, for May delivery.

'Limited arbitrage opportunities'

Mr Glasenberg's comments came as Glencore unveiled a 47% slump to $192m in underlying operating profits at its agriculture division last year.

The business was hurt by the dent to volumes from the drought-hit 2012 harvest in the US, and from Argentine farmers' hoarding of crops as a hedge against a falling peso, besides taking a hit from lower levels of crop price volatility for much of last year.

"The agricultural products segment, as reported in our interim results, was substantially lower, compounded by crop shortfalls, limited volatility and South American logistics and sourcing challenges experienced during the first half of 2013," the group said.

The "limited arbitrage opportunities" made for "challenging" market conditions.

Canada rail hiccups

However, Glencore also added its voice to those concerned over Canada's railroad shortfalls, saying that these had hampered efforts by its Viterra grain handling business to exploit the country's record canola and wheat crops last year.

"A lack of railroad capacity constrained volume growth," the group said.

Chris Mahoney, the head of Glencore's agriculture business, said: "There are some rail issues in Canada, which have been well publicised.

"That's restricting the volume a bit, but the margins have been good and will continue to be good."

As a group, Glencore achieved a 20% rise to $3.67bn in underlying earnings for last year, on revenues up 1.5% at $239.7bn.

Glencore shares stood 1.7% higher at 331.7p in late deals in London.

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