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Cargill returns to the black, helped by raised market volatility

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Cargill ended the spree of downbeat earnings by agricultural trading giants, using the revived volatility in crop markets to return strongly back to the black.

The Minnesota-based trader, one of the world's biggest privately-owned companies, unveiled earnings of $512m for the June-to-August period, up 20% year on year – and a sharp contrast with the loss it reported in the previous quarter.

In the March-to-May period, Cargill fell $51m into the red, its first quarterly loss in 15 years, a performance in part blamed on weak volatility.

Last week, Louis Dreyfus Commodities cited the reduced demand for customers for "risk management expertise from agri-commodity traders", amid more settled demand in markets, as it unveiled a halving in earnings in the January-to-June half.

However, David MacLennan, the Cargill chief executive, said that effective positioning in more volatile markets, with price moves spurred by the likes of El Nino worries besides by growing concerns over China, had fuelled the US group's profits revival.

"Our team ably navigated the quarter's weather-driven agricultural commodity markets, as well as the effects of more volatile emerging markets, currency fluctuations and other macroeconomic uncertainty," Mr MacLennan said.

Grain and oilseed returns

Cargill's origination and processing unit, which buys, sells, stores and processes crops, made the largest contribution, as results from the grains and oilseed sector "rose considerably".

Cargill ascribed the rising returns to "effective positioning in agricultural commodity markets distinguished by persistent downward trends and occasional sharp price reversals.

Earnings from the group's soybean crushing arm were up, helped by an unusually long processing season in North America.

The results paint a sharp contract to rival commodity trader Louis Dreyfus, which last week reported sharply falling profits off the back of weaker commodity prices.

Beef suffers

But Cargill's animal protein arm suffered from its move away from the pork business.

"Cattle costs remained high, and continued high beef prices caused consumers to seek less expensive alternatives such as pork and poultry," the group said.

Cargill sold its pork business to Brazilian Group JBS SA earlier in the year.

And low sugar prices weighed on Cargill's food ingredients sector, with lower returns from the sweetener business, while falling crude oil prices cut earnings from the ethanol business.

Lower operating earnings after the closure of its hedge fund arm Black River Asset Management LLC this summer weighed on results in Cargill's industrial and financial services segment, only partly offsetting stronger returns in energy trading.

Outside of the agriculture sector, Cargill posted higher earnings from its energy and metals segments.

"The energy businesses posted a solid first-quarter profit due to effective trading strategies in more volatile, downward trending markets," Cargill said.

Hedge fund arm closed

Cargill last week announced that it was to wind up its hedge fund arm.

Two of the funds in the wholly-owned subsidiary Black River Asset Management, covering agriculture and energy, transportation and metals, will be folded back into Cargill.

Another three funds, which are less closely linked with Cargill's core business, will be spun off into separate employee owned firms.

By William Clarke

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