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Soy, sugar rallies wrong-foot Wilmar, which plunges into rare loss

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The rallies in soybean and sugar futures to multi-year highs caught out Wilmar International, plunging the agricultural trading giant into the red for the first time in more than a decade.

Wilmar, the world's top palm oil processor and a major force in ags from grains to sugar too, said that thanks to "challenging operating conditions" it would report a loss of $230m for the April-to-June quarter.

The loss - following an unbroken string of quarterly profits going back to at least 2006, as shown by Reuters records - contrasts with investors' expectations of another quarter of decent profits for Wilmar, for which analysts had pencilled in earnings of $1.19bn for 2016, a rise of 13% year on year.

However, Wilmar said that its results for the first half of the year would show profits for the January-to-June half "significantly lower" year on year.

'Mark-to-market losses'

The group had - when reporting results for the January-to-March quarter, which showed a profit of $239.4m - cautioned that "recent volatility in sugar prices will have an effect on our sugar operations".

However, Wilmar on Tuesday said that the sugar division's profits would in fact fall deeper into the red in the April-to-June period that a year before, when the business reported a $37.5m pre-tax loss.

The group blamed "accounting mark-to-market losses on hedges as a result of higher sugar prices", which on New York's futures market soared above 20 cents a pound during the quarter for the first time since late 2013.

Losses in sugar were also blamed on weather setbacks, with dry weather "expected to reduce the volume of cane crushed" at Wilmar's Australian sugar operations.

'Untimely purchases'

However, the group's grain and oilseeds manufacturing unit was singled out as the main centre of Wilmar's losses, being caught out by the 29% surge over the April-to-June quarter in soybean prices, as measured by spot Chicago futures.

"Untimely purchases of raw materials, specifically soybeans, in a highly volatile and disruptive market, resulted in significant losses being recorded in the segment," Wilmar said.

"Unexpected flooding in Argentina affected the soybean harvest, and heavy participation by funds in the futures markets, amongst other factors, contributed to the very volatile markets."

Business model 'intact'

Wilmar termed the quarterly downturn as a "one-time" loss, adding that "the group's business model remains intact and resilient.

"The long term prospects of the group are stronger as it continues to execute on its stated growth strategy.

"Barring unforeseen circumstances, operating environment for the group for the rest of the year is expected to normalise," Wilmar added.

The announcement was made after the close of Singapore's share market, where Wilmar stock closed unchanged at Sing$3.35, giving the group a stockmarket value of more than Sing$21bn.

By Mike Verdin

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