Cargill sounds warning of a slow recovery

By Gregory Meyer in New York

Published: August 17 2010 18:49 | Last updated: August 18 2010 01:20

Cargill, the world’s largest agricultural commodities trader, on Tuesday warned that the global recovery had yet to gain traction as it reported a second straight decline in annual profit.

As economists debate the merits of government intervention to avoid a double-dip recession, the company said the economic outlook was uncertain.

“More uncertainty lies ahead, for the world has yet to transition from a policy-stimulated upturn to a structurally sustained recovery,” Cargill said in its annual report. “Europe’s debt crisis and China’s monetary tightening are moving markets. Governments have made promises that their economies cannot fulfil. Regulations are changing in unpredictable ways.”

The US’s largest privately owned company by revenue has a unique vantage on global economic trends, trading commodities from corn to oil to salt with employees in 66 countries.

It has expanded into more value-added business, developing finished products for food companies, hedging strategies for farmers and investment vehicles for pension funds.

Cargill earned $2.6bn in the fiscal year ended May 31, down 22 per cent from the previous year’s $3.3bn. Profit was the lowest since 2007. Results were dragged down by Mosaic, the fertiliser company in which Cargill owns a 64 per cent stake. Excluding Mosaic, whose profit fell 65 per cent in the year, Cargill’s profit rose 14 per cent to $2.1bn.

In a sign that the worst of the financial crisis is over, all five of Cargill business segments earned more in the fourth quarter than the same quarter of 2009. Net quarterly profit more than doubled to $691m from $327m a year before. Excluding the Mosaic investment, earnings rose 87 per cent to $433m.

Minnesota-based Cargill does not detail results of individual business segments, but said three of the five improved performance in the year.

After bottoming out in 2009, many commodity prices have moved sideways due to listless demand in developed economies. Corn futures fell 19 per cent during Cargill’s fiscal year, while crude oil gained 8 per cent. Cargill blamed lower annual profits in its origination and processing segment, which hauls grain across oceans, on “choppy, range-bound markets” that made trading opportunities scarce.

“There was a lot of uncertainty,” David MacLennan, Cargill’s chief financial officer, told the Financial Times. “There was a lot of traditional market participants on the sidelines staying liquid. I think there was a lot of residual fear of risk.” The company said the recession slowed food consumption in western Europe and the US, but emerging economies’ demand “grew at a surprisingly sturdy rate”.

Cargill’s annual revenue fell to $107.9bn from $115.1bn in 2009.

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