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Cotton, coffee, soy help Dreyfus beat 'globally low' grains results

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Louis Dreyfus flagged boosts from "solid margins" in oilseeds crushing, and coffee and cotton trading, the agricultural commodities giant unveiled a 17% rise in earnings, despite "globally low" results in grains.

The group, one of the world's biggest agricultural traders, acknowledged the headwind posed by a ample supplies of many farm commodities, creating what Gonzalo Ramirez Martiarena, the Louis Dreyfus chief executive, "continues to be a fundamentally challenging market".

Conditions were marked by a "combination of near-record harvests, supply growing faster than demand, and the absence of any major physical disruptions", the group said, echoing comments on Wednesday from rival Cargill.

In grains, the "relatively weak price volatility levels" prompted by the strong supply expectations left "operating results… globally low" for the January-to-June half.

Louis Dreyfus also highlighted a "challenging phase" for its sugar operations "amidst mixed market signals and complex fundamentals", as the market absorbs a return to a world net production surplus in 2017-18, after three successive seasons of output deficit.

"Heavy selling by managed funds became an unexpected, major market driver," the company said.

'Solid margins in crushing'

However, earnings for the half rose nonetheless to $159m, from $136m a year before, on revenues up 17.9% at $27.75bn, thanks to improved performances in other divisions, including the oilseeds platform, which "delivered very satisfactory – and improved – results.

"The performance was generated by solid margins in crushing," Louis Dreyfus said, noting also support from logistics operations in the Americas, "and supported by additional sales volumes across the board".

The group's so-called "value chain" division, which oilseeds is a part of, achieved a $1m rise to $352m in operating profits for the half year, despite the poor result in grains, with a strong performance in freight also supporting the results.

Freight profitability was helped by both rising shipping rates, which have seen the Baltic Dry index reach its highest levels since 2014, and "high volatility" during the April-to-June period, thanks to market disruptions from factors such as port maintenance in Brazil and cyclones in Australia.

Coffee curve ball

Louis Dreyfus's other operating division, merchandising, reported a 28% rise to $250m in operating profits for the half year, thanks largely to "substantial and improved results" in cotton, of which it is the world's largest trader.

The group flagged "solid returns in marketing Chinese, Indian and US cotton", helped by rising trade volumes, with US results helped by "very profitable" warehouse operations too.

In coffee, the group said it "also saw satisfactory origination margins", especially in Vietnam and Honduras, besides achieving "solid commercial activity"- a factor which had helped the business to deal with a curve ball stemming from speculative activity.

"Managed money funds sold their positions massively in a short period in April, which resulted in a collapse in coffee market prices despite positive fundamentals, especially in robusta."

The group also acknowledged that its performance in dairy was "impacted" by the surge in butter prices, which it said had been "triggered by disappointing milk production figures from France and Germany".

'Renewed optimism'

The group added that "economy wide, the first half of 2017 looked a bit brighter.

"Though some emerging countries did not perform as well as expected, improved signals, notably in Europe, fuelled regaining optimism."

Mr Martiarena said: "We are starting to see renewed optimism, most notably in Europe, but still recognize the need for flexibility to adjust our geographic and operational footprint."

By Mike Verdin

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