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Louis Dreyfus hints at coffee, cotton deals ahead

Louis Dreyfus Commodities hinted at the potential for deals in coffee and cotton - but highlighted meat, dairy and sugar as markets placed for demand growth - as the group revealed it was sticking by $4bn spending plans despite a drop in earnings.

The grain-to-fertilizer giant with Archer Daniels Midland, Bunge and Cargill one of the ABCD group of major crop trading houses - reported a 36% drop to E640m in earnings for 2013.

Although revenues were 11.3% higher at $63.6bn, processing margins earlier in the year were affected by high crop prices, a hangover from the US drought in 2012, while performance the sugar division "was constrained by the global sugar surplus".

In juice, in which Louis Dreyfus as in sugar is a top three global player, while the group's Brazilian orange juice plants "ran at full capacity, poor yields were recorded due to high water levels in the fruit", Ciro Echesortu, the company's chief executive, said.

Expansion plans

Nonetheless, despite the drop in profits, Mr Echesortu highlighted the group's ambitions for expansion, saying that while Louis Dreyfus's sales had quadrupled since 2006, "we are only half the size we plan to be by the end of 2014".

Serge Schoen, the Louis Dreyfus executive chairman, said that the company was "committed to growing our industrial footprint, investing on average $800m each year".

Chairperson Margarita Louis-Dreyfus, of the 163-year old group's founding family, highlighted the role in funding expansion of the trading house's turn to debt capital markets, where Louis Dreyfus raised $350m in September 2012, E400m last July, and E500m in December.

"In conjunction with existing capital, the funds raised from debt markets support an ambitious investment programme focused on strategic expansion," she said.

"Our plan to invest $4bn in mid-size assets around the world by 2018 clearly demonstrates our commitment to growing our business."

'Strong consolidation role'

While stopping short of giving details on spending plans, the group highlighted its intention to "play a strong consolidation role" in the coffee trade, "as we secure origination of different coffees and meet demand in new destination markets".

The group already has new warehouses under construction in Honduras and in Indonesia, after opening a plant last year in Brazil, the top coffee producing country, which has grown to second rank in consumption too.

Louis Dreyfus also said it was in cotton seeking "opportunities to consolidate our market position by means of investment throughout the value chain".

The group last year entered a joint venture in Australia with Naomi Cotton Co-operative, to give it "greater exposure to additional cotton volumes to meet the needs of its international customers".

The deal joined Naomi, with a market share of about 30% of Australian cotton marketing volumes, with a Louis Dreyfus business which handled about 20%.

Promising markets

Nonetheless, Mr Echesortu highlighted other markets as holding particular growth prospect, saying that "greater wealth distribution and a growing middle class should accelerate consumption towards meat, dairy products and sugar over the next 5-10 years".

Louis Dreyfus in 2012 bought US sugar processor and distributor Imperial Sugar, and in the same year purchased Dutch-based dairy trade Ecoval.

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