U.S. agribusiness company Cargill Inc on Wednesday reported a 41 percent drop in quarterly profits as the lingering effects of the 2012 severe drought in the United States reduced grain-handling opportunities.
The company struggled with razor-thin inventories in the world's top farm exporter, which kept grain pricey and lowered processing volume and export demand during the summer months.
Minneapolis-based Cargill, one of the world's largest privately held corporations and a top commodities trader, reported $571 million in net earnings for the first quarter ended Aug. 31, down from last year's record quarter of $975 million.
First-quarter revenues of $33.8 billion matched the year-ago period.
"Our agricultural supply chain and food ingredient businesses were focused on helping customers and the company to successfully manage their raw material purchases and inventories during the market uncertainty that precedes the transition to new crops in the northern hemisphere," Cargill's CEO Greg Page, said in a statement.
A big U.S. corn and soybean harvest now under way is expected to replenish supplies, thus boosting export prospects and processing volumes for Cargill as well as rivals such as Archer Daniels Midland and Bunge. ADM and Bunge also reported disappointing earnings for the quarter ended June 30 tied to short corn and soybean supplies. Both will report quarterly earnings in the coming weeks.
U.S. exports for corn, wheat and soybeans for the quarter ended Aug. 31 were down nearly 30 percent from a year ago, dragged lower by corn and soy shipments, according to data from the U.S. Department of Agriculture.
"We were dealing with dwindling corn and soybean stocks and strong immediate demand for cash grain, and in North America, gyrations in the weather which really made the harvest expectations difficult to ascertain. All of that caused the markets to invert," said Cargill spokeswoman Lisa Clemens.
"When you're looking at inverted markets, where your nearby prices are much higher than more distant contracts, you have to do an excellent job managing your purchases and your inventories," Clemens added.
BETTER MARGINS IN MEAT BUSINESS
Standard & Poor's ratings analyst Chris Johnson said Cargill's lower earnings were expected, given the strength of earnings a year ago.
"We're looking at continued stabilization in their beef and animal protein business. That continued to be the trend line," said Johnson, noting that S&P upgraded Cargill's debt rating to stable last month from a negative outlook after its beef segment showed signs of improvement last quarter.