All eyes on ADM and Bunge after Cargill profit jumps 20 percent
By Karl Plume
CHICAGO (Reuters) - A 20 percent quarterly profit jump for global grains trader Cargill Inc [CARG.UL] suggests recent disappointing quarterly earnings from rival agribusinesses Archer Daniels Midland Co (ADM.N: Quote) and Bunge Ltd (BG.N: Quote) may be more of a blip than long- term concern, analysts said.
Cargill's strong results, reported on Wednesday, seem to indicate surprising strength for traders of agricultural commodities, as compared to those exposed to industrial and precious metals which have fallen sharply and rattled Glencore Plc (GLEN.L: Quote) and Noble Group (NOBG.SI: Quote).
Privately held Cargill navigated sinking crop prices, volatile currencies and slowing growth in top grains importer China to turn in a net $512 million profit in its fiscal first quarter, bouncing back from a $51 million loss due to one-time charges in the prior quarter.
The core businesses of companies like ADM, Bunge and Cargill make money by buying, selling, transporting, storing and processing grains and oilseeds. Margins are typically thin, but volumes are massive when crop supplies are ample - and prices low - as they currently are.
"Historically, the way a commodity firm gets in trouble is when they get too far away from that model. ... That does take some discipline and that's something that Cargill has learned exceedingly well," said Scott Irwin, an agricultural economist at the University of Illinois.
U.S. farmers are currently harvesting among their largest-ever corn and soybean crops, adding to already record-high global stocks.
Meanwhile, farmers in South American grains powerhouse Brazil have been actively marketing crops as their real currency has plunged to around 13-year lows against the dollar. Sales of the crops are typically made in dollars, meaning that farmers realize greater earnings for their crops when the currency weakens against the dollar.
"For the last two years, farmers have held on to their crops in the third (calendar) quarter so results were weaker for all these companies," said John Rogers, a senior vice president and team leader for chemicals and commodities at Moody's. Continued...