Photographer: Daniel Acker/Bloomberg

Amid Glencore Worry, Cargill Commodity Traders Get It Right

  • Grain, oilseed performance offsets closing of hedge funds
  • Traders navigate price drop: "We generally welcome volatility"

While Glencore Plc is out of favor with investors, Cargill Inc. is showing that commodity traders can still get it right, even in a bear market.

Cargill, the largest closely held U.S. company, posted a 20 percent gain in fiscal first-quarter earnings, partly because its traders made smart calls in the corn and soybean markets in recent months. Net income rose to $512 million in the three months through August, even as sales declined 17 percent to $27.5 billion, Minneapolis-based Cargill said Wednesday in a statement.

The company’s traders weren’t convinced by the rally in corn and soybeans in June, when excess rain raised speculation that U.S. crop yields would decline. They were proven correct in the following two months as those concerns eased. The company said its team “ably navigated” weather-driven agricultural commodity markets, more volatile emerging markets, currency fluctuations and other uncertainties, Chairman and Chief Executive Officer David MacLennan said in the statement.

Pork Sale

“We generally welcome volatility,” said Lisa Clemens, a Cargill spokeswoman. “Volatility is a proxy of our role in the market. It shows there are changes in demand or supply happening where our role in connecting areas of surplus to areas of need is warranted.”

The latest earnings report marks a rebound for Cargill after an eventful last few months. In July, the 150-year-old company’s Black River Asset Management investment arm said it was liquidating four hedge funds, and Cargill also agreed to sell its U.S. pork business to Brazil’s JBS SA. In August, it posted its first net quarterly loss in 14 years amid a slowdown in emerging markets and agreed to buy Norwegian salmon-feed supplier EWOS Holding AS for 1.35 billion euros ($1.52 billion). And just last month, Cargill confirmed Black River will be broken up and spun off.

Trading Risk

Cargill, which is still controlled by its eponymous founding family, not only trades agricultural commodities but also produces beef and turkey. The company shares some similarities with Swiss commodity trader Glencore, which trades energy and metals while also producing those commodities. Its share price has plunged in recent weeks on concerns about the company’s debt levels and the risks of trading amid big commodity-price declines. Glencore is seeking to sell a minority stake its agricultural unit to help reduce debt.

Cargill said its origination and processing segment made the largest contribution to the quarter’s earnings because of its positions in the agricultural-commodity markets. Soybean crushing also improved with better capacity utilization in South America and a long processing season in North America.

Cost Cuts

While animal nutrition rose and poultry results in Central America, Europe and the U.S. also improved, Cargill’s North American beef operations were weaker because cattle costs climbed and higher prices for the meat spurred consumers to buy more pork and poultry, according to the company. In Cargill’s industrial and financial services unit, adjusted operating earnings declined following the hedge fund closures.

MacLennan said “good headway”  was made in the quarter on operational improvements to strengthen business performance at the company, which employs 155,000 people in 68 countries. Cargill is looking at its businesses to build a “stronger and more competitive portfolio,” reduce costs and increase productivity, Clemens said.

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