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Cargill profits fall, amid 'diminishing trading opportunities'

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Cargill stressed its drive to expand down the food chain, and into more sophisticated feed additives, as it unveiled its first fall in underlying profits in more than a year, undermined by “diminished volatility” in commodities trading.

 

The agricultural commodities merchant - with Archer Daniels Midland, Bunge and Louis Dreyfus one of the “ABCD” group of sector giants – reported that unveiled more than $1bn in acquisitions, joint ventures and infrastructure investments during the September-to-November quarter, in a drive to boost its offering to customers.

 

“We are reinvesting in ways that enable our teams to achieve more for our customers,” said David MacLennan, the Cargill chairman and chief executive.

 

“We are building businesses today that will provide our customers and consumers with the products and solutions they are seeking tomorrow.”

 

‘Additional consumption flow’

 

The group highlighted moves such as an expansion into canola oils containing 35% less saturated fat than previous offerings, its use of blockchain technology to boost traceability of Thanksgiving turkeys, and in feed October’s acquisition of Diamond V, whose products aim to boost animal immunity.

 

The move, and July’s tie-up with Australia-based Delacon, “support the market shift toward sustainable, natural feed ingredients that improve animal health and embrace changing consumer values”, Cargill said.

 

The group also flagged its construction of $90m biodiesel plant in Kansas, set to open next year, and “create an additional consumption flow for US soybean production”.

 

Biodiesel is manufactured from vegetable oils, mainly soyoil in the US, although from palm oil in South East Asia, and rapeseed oil in Europe.

 

‘Diminishing trading opportunities’

 

The shift comes in the face of a tricky market for traditional trading activities, a dynamic which is prompting rivals such also to diversify into higher-margin business, with ADM for instance rejigging a US ethanol plant to produce higher margin beverage alcohol, and expanding into ingredients, helped by its $3bn purchase of Wild Flavors three years ago.

 

Cargill, reporting that profits its origination and processing arm, historically its core division, fell “moderately” year on year in the September-to-November quarter, cautioned over the impact of “another year” when “very large US corn and soybean crops added to the build-up in global stocks.

 

“Although global demand continues to grow, today’s abundant supplies have weighed on markets, diminishing volatility and trading opportunities,” Cargill said, echoing comments from peers such as Bunge and Louis Dreyfus.

 

Profits decline

 

The origination and processing arm was the only one of Cargill’s four operating divisions to report a drop in earnings, with the industrial and financial services arm enjoying “improved profits” in shipping, and the food ingredients business seeing a “broadly” increased result.

 

The animal nutrition and protein business, the group’s biggest earner, saw adjusted operating profits rise “narrowly” year on year, helped by raised contributions from premix and feed additive units.

 

Nonetheless, Cargill reported adjusted group earnings down 8.0% at $948m for the quarter, the first year on year decline since the March-to-May period of 2016.

 

Headline earnings fell by 6.3% to $924m, on revenues up 8.6% at $29.2bn, the highest in three years.

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