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Glencore looks to improved grain markets over the rest of 2015

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Commodity giant Glencore's expects to see a "significant" increase in earnings from its agriculture segment over the next six months, thanks to an improvement in grain markets.

The Switzerland-based mining and commodity trading group is hoping to see grain trading normalise, after low prices and limited volatility ate into earnings for the business.

Shares in Glencore slumped to a record low on Wednesday, as the company reported sharply lower earnings across the group, including in the trading arm which was thought to insulate the business from commodity prices, compared to pure-play mining companies.

Limited volatility

In the first six months of 2015, Glencore's agriculture segment reported earnings before interest, taxation, depreciation and amortisation of $332m, down 46% from the same period last year.

"The decrease reflected a more challenging grains trading environment, with generally good crops pressuring prices and limiting volatility," Glencore said.

The company cited the implementation of wheat export tariffs in Russia, while The grain handling business was hurt by comparatively smaller crops in Australia and Canada.

But Glencore said "oilseeds marketing performed well and consistently, as did cotton".

Improved second half

"The second half 2015 is expected to be significantly up on the first half, with an improved grain marketing performance," Glencore said.

The group cited rising contributions from its agriculture and metals segment supporting full-year guidance for earnings before interest and tax of $2.5-$2.6bn, compared to expectations of at least $2.7bn of earnings for the segment.

The reduced hopes for the group's marketing, or trading, arm, which investors had viewed as more insulated from commodity prices compared to the extraction business, capped off a disappointing set of company results across all segments.

Shares plumb lows

Shares in Glencore fell to new record lows on Wednesday, on the news of a net loss of $676m in the first six months of 2015, compared to $1.72bn profit over the same time last year.

Glencore's adjusted earnings before interest, tax, depreciation and amortisation fell 29% to $4.6bn. The group reported unaudited revenues for the first six months of 2015 at $85.708bn, down 25% from $114.064bn last year.

The group also cut its planned capital expenditure for this year to $6bn from up to $6.8bn announced in February and that spending would fall further to a maximum of $5bn next year, as it fights to prevent a ratings downgrade.

Glencore shares in London were down 8.4% at £161.25 a share in midday deals.


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