China corn hiccups fuel tumble in Cargill profits
By - Published 08/04/2014

Cargill's earnings fell to their lowest in nearly two years, hurt by a loss on energy trading, North America's rail hiccups, and China's rejection of some US corn cargoes, a trend which officials warned will continue to overshadow trade.

Cargill - with Archer Daniels Midland, Bunge and Louis Dreyfus one of the ABCD of large agricultural trading houses unveiled a 28% tumble to $445m in earnings for the December-to-February quarter.

The fall in profits to their lowest level since the March-to-May period of 2012, on revenues down marginally at $32bn, reflected in part a trading loss on an "unprecedented price spike" in US power markets in January, and costs of an investment programme on projects ranging from a corn processing plant in Brazil to an Indian feed mill to a Belgian cocoa crushing facility.

However, the group also highlighted "weather-related disruptions" to rail services in North America, where cold winter weather forced trains to run slower and with reduced lengths, cutting crop handling volumes, and by the "rejection of certain US corn shipments to China".

Chinese rejections

Indeed, Cargill's crop origination and processing division, a key competitor against the likes of ADM, Bunge, Gavilon and Glencore, suffered a drop in earnings thanks to "costs related to China corn trade".

Chinese authorities have, since November, rejected a series of cargos of imported US corn, totalling more than 900,000 tonnes, over claims of contamination with a Syngenta genetically-modified variety unapproved by Beijing.

This has required merchants finding new homes for the corn, typically elsewhere in Asia, and at a discount.

More than 90,000 tonnes in Chinese imports of US distillers' grains, a feed ingredient manufactured by corn ethanol plants as a byproduct, have also been rejected.

Government enticement

Some observers believe the refusals have been motivated by a quest by officials to promote consumption of domestically-produced, if often more expensive, corn after a strong harvest last year, of some 218m tonnes.

Indeed, the US Department of Agriculture bureau in Beijing said separately that China's government "is encouraging end users to purchase domestic corn over cheaper imports", highlighting a subsidy of 140 remninbi ($22.60) per tonne until June for southern users of the grain to purchase from the main north eastern production region.

The comments came as the bureau pegged at 4.0m tonnes China's corn imports in 2013-14, 1.0m tonnes below the official forecast, and estimated buy-ins next season declining to 3.0m tonnes, of which US supplies are likely to account for a lower share.

"While the US remains China's largest corn supplier, recent trade disruptions are prompting end users to seek alternative suppliers, such as Ukraine," the bureau said, noting buyers' interest in supplies from Argentina and Brazil.

The USDA in its long-term, so-called "baseline", crop forecasts in February estimated Chinese corn imports next season at 6.0m tonnes.

'Record pace'

Cargill reported "solid" results at its food ingredients division, if noting that earnings declined "moderately", thanks to "lacklustre consumer demand", expansion costs and comparison with a year-ago figure swollen by a one-off gain.

Earnings "rose considerably" at the US-based group's animal nutrition and protein division, helped by strong results in US and Australian beef exports.

"Our animal protein results are much improved from last year, and, with 2012's acquisition of Provimi, our global animal nutrition operations are on a record pace for the year," said David MacLennan, the Cargill chief executive.

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