January 12, 2012 / 12:22 AM / 6 years ago

ADM becomes latest agribusiness giant to cut jobs

CHICAGO (Reuters) - Agricultural processor Archer Daniels Midland Co said on Wednesday it will reduce its workforce by 3 percent, making it the latest agribusiness giant to make cuts in the face of volatile global markets.

ADM said it will eliminate about 1,000 positions worldwide in the first broad reduction in company history. It estimates the job cuts and other cost reductions will eventually reduce the company's annual pre-tax expenses by more than $100 million.

ADM rival Cargill also has cut jobs to save money at a time when the world's top commodity trading houses and processors are under pressure. Cargill said last month it will eliminate 1.5 percent of its staff, or about 2,000 people.

"To ensure that we can continue to compete effectively in our global markets, we are taking actions to streamline our organization and achieve significant, sustained cost reductions," said Patricia Woertz, ADM chairman and chief executive officer.

Commodity trading firms and processors have struggled as volatile markets have increased the risks and costs.

Top agricultural traders often prosper during volatile times by using their vast global networks to exploit opportunities. However, merchandisers were sometimes caught flat footed by swings in crop prices this fall, when markets were driven by the euro zone crisis, not by supply and demand.

For trading houses, a major concern is a decline in financing from lenders due to the euro zone crisis, said Shelley Goldberg, director of commodities and global resources strategy for Roubini Global Economics. Less lending means less business for trading firms, she said.

"If your expectations for sales are not good, you're going to hone in and sit on cash and perhaps cut employees," she said

ADM is one of four large players, known as the ABCD companies, that have traditionally dominated business in commodity markets. The others are Bunge (BG.N), Cargill and Louis Dreyfus.

Bunge, the world's largest oilseed processor and among the top sugar and ethanol producers, posted a 34 percent decline in earnings in the third quarter.

Another commodities giant, Noble Group, posted its first quarterly loss in more than a decade in the third quarter, sending its Singapore-listed shares plunging.

Cargill on Tuesday revealed a third consecutive slump in quarterly earnings and said the quarter ended November 30 was its worst quarter since 2001.

Cargill singled out trading operations for dragging down stronger earnings in its food and agricultural services divisions. It said Europe's debt crisis had hurt equity and distressed-asset trades in its hedge fund division. Sugar trading also recorded a loss.

ADM announced its cuts one day before the U.S. Department of Agriculture is slated to issue highly anticipated crop reports. The reports, which often whipsaw grain and soy prices, are due out at 7:30 a.m. CST on Thursday.

Prices for corn and soybeans are historically high due to concerns about global supplies. Yet, high commodity prices do not always translate into strong revenues for agribusiness companies.

Companies like ADM make money by buying, selling, shipping and storing farm products and by processing commodities like corn and soybeans into products like livestock feed.

"It's a crack margin business," said Min Tang Varner, an analyst who covers ADM for Morningstar.

ADM faces increasing global competition as other processors are becoming more aggressive about managing costs, spokesman David Weintraub said. The company does not plan any further job cuts to control costs, he said.

ADM said it expected to record a $50 million to $75 million pre-tax charge related to the cuts in the third quarter of fiscal year 2012. It expects to begin benefitting from the cost reductions in the fourth quarter and projected the full benefit will be seen by the end of the third quarter of fiscal year 2013.

It's too soon to say in which locations and divisions the cuts will take place, Weintraub said. U.S. employees can sign up for voluntary early retirement until the end of the month. After that, the company will assess how to reach the 3 percent target globally, he said.

One division that is struggling is soybean processing, said Ann Gurkin, an analyst for Davenport & Company who follows ADM. Margins for global soybean crushing have been under pressure due to excess capacity, she said.

"I think the cuts are in response to the continued tough environment in the soybean business," she said.

Canada's biggest grain handler, Viterra, said on Wednesday it is not struggling like its rivals. The company will report solid fourth-quarter results next week and has no plans to reduce its workforce, CEO Mayo Schmidt told Reuters.

Additional reporting by Rod Nickel in Winnipeg; editing by Jim Marshall, Marguerita Choy and David Gregorio

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