Cargill Says Grain Rally Means No Food Shortage

Cargill Inc. Chairman and Chief Executive Officer Greg Page says the surge in crop prices during the worst U.S. drought in 56 years will encourage farmers to increase production for 2013.

“While there is a lot of gnashing of teeth and wringing of hands around price, the positive is that it is a signal to the world’s suppliers to intensify the way they produce our food next year,” Page, 61, said in an interview at Bloomberg headquarters in New York yesterday. “Price can be a good thing if the goal is to produce enough calories and enough protein to feed everyone.''

Global food production this year measured by calories likely will be 2 percent less than what was expected at the start of 2012, Page said. Lower forecasts for corn output in the U.S., the biggest grower and exporter, pushed futures to a record $8.49 a bushel on Aug. 10 in Chicago. The most immediate farmer response to the U.S. drought may be with expanded harvests in South America, particularly Brazil, Page said.

Prices are above the cost of production, which creates an incentive to plant more, Page said. Currently, corn futures for delivery in December 2013 are trading more than a $1 lower than the $7.40-a-bushel cost of grain to be delivered this December.

“We can grow a lot of food at these prices,” Page said.

U.S. Drought

Cargill, the largest closely held U.S. company, dominates the U.S. grain market along with Archer Daniels Midland Co. and Bunge Ltd. (BG) The Minneapolis-based company was founded in 1865 and employs about 140,000 people around the world to produce and trade food and other commodities.

Corn and soybeans have rallied to records since mid-June as damage from the hot, dry U.S. summer became evident. After initially forecasting a record corn crop, the U.S. Department of Agriculture cut its estimates three months in a row. Its most recent prediction is 10.7 billion bushels this season, the smallest in six years.

The effects from higher food prices are being felt from Mumbai to Mexico City. U.S. hog farmers are slaughtering animals at the fastest pace since 2009 as a surge in feed costs spurs the biggest losses in 14 years.

In times such as these, governments start asking whether self-sufficiency will lead to food security, Page said.

Food Security

So far there hasn’t been a repeat of Russia’s ban on grain exports that ran for 10 months through July 2011, or India’s 2010 halt on wheat sales. Erecting trade barriers isn’t the answer, Page said.

“The definition of food security needs to be couched in the aggregate and everybody needs to do what they do best and trade with each other,” Page said. “It’s not always an easy message to carry.”

Page joined Cargill in 1974 and has worked at the company’s operations in Thailand and Kansas as well as its financial markets group in Minneapolis. A graduate of the University of North Dakota, he became chairman and CEO in 2007.

Some of what he’s advocating can already be seen in the corn market, where some countries are stepping in and increasing exports as estimates for the U.S. crop shrink. “Modest” amounts of corn are now coming into the U.S. from Brazil while sorghum is arriving from Argentina, Page said.

Brazil Boost

Brazil, the third-largest producer of corn, boosted exports to a record 2.76 million tons in August from 1.52 million tons a year earlier, government data show. Its corn harvest may climb 29 percent this year, the United Nations Food and Agriculture Organization said Sept. 19.

The country is also set to surpass the U.S. as the biggest soybean grower. Its soybean crop may be 23 percent bigger than last season, Hamburg-based researcher Oil World said last week.

Africa is another region that can step in with higher food production in the years ahead, according to the Cargill CEO. He cited the example of Zambia, where “remarkable” productivity gains have taken place in less than a decade because farmers have benefited from higher prices and economic growth driven by the country’s copper mines.

Cargill’s profit from continuing operations fell 56 percent in the year through May 31, a decline blamed by the company on its trading and narrower margins in soybean and beef processing. Reporting the earnings in August, Page said Cargill’s performance didn’t match its expectations.

‘Worst May’

It had “the worst May in the history of Cargill,” partly because it was caught out by the drop in corn that month that preceded its rally to a record, Page said yesterday. Corn futures slumped in May after U.S. farmers planted the most acres since 1937 and Europe’s sovereign debt crisis intensified.

“The risk-off trade just swamped every other piece of analytic we had done,” he said.

While speculative investors can be blamed for that kind of short-term price volatility, their impact over three to five years is minimal, Page said.

“There are a lot of politicians who say speculators unduly influence the price of food,’” he said. “I don’t subscribe to that.”

To contact the reporter on this story: Shruti Singh in Chicago at ssingh28@bloomberg.net

To contact the editor responsible for this story: Simon Casey at scasey4@bloomberg.net

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