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6 Months : From May 2019 to Nov 2019
By Jacob Bunge
Cargill Inc. is altering its global food trading to navigate production problems and trade disputes that have cut deeply into the agricultural giant's profit.
The Minnesota-based company is shipping more farm commodities to Europe and the Middle East due to China's tariffs on U.S. goods like soybeans and ethanol, said David Dines, Cargill's chief financial officer. Cargill is also boosting international sales of beef and poultry, as a hog disease sharply reduces into China's pork production.
Cargill, along with competitors such as Archer Daniels Midland Co. and Bunge Ltd., is grappling with the continuing U.S.-China trade dispute, which has upended longstanding commerce patterns in food and forced crop traders to find new markets in other countries. The companies, which buy crops from farmers for processing and export, now face the toughest U.S. growing season in years after flooding and persistent rainstorms disrupted processing operations and put U.S. farmers months behind in raising this year's crop.
Cargill said Thursday that trade disputes and springtime flooding factored into a 67% drop in the company's fiscal fourth-quarter profit, which fell to $235 million, while quarterly revenue declined 1% to $29.9 billion.
China over the past decade has been the second-biggest buyer of U.S. farm commodities, purchasing $19.5 billion worth of agricultural exports in 2017, or about 14% of the total, according to U.S. Department of Agriculture data. But China's spending on agricultural imports from the U.S. dropped by more than half in 2018 as the countries' tariff battle escalated.
The decline has alarmed the U.S. agriculture industry, which worked for decades to cultivate China as a customer, and now see their crops displaced by South American competitors. Some U.S. farm officials fear lasting damage to the U.S. reputation as a reliable source of crops, meat and dairy products.
"The longer it goes on, the more permanent it will be," said Mr. Dines. Cargill has been redirecting sales typically made to China to other buyers in Europe, the Middle East and Africa, he said. For now, the company hasn't altered any long-term investment plans as a result of the current trade disputes.
"Our goal would be to have a fast resolution to it," Mr. Dines said.
China's struggle to contain African swine fever, an illness fatal to hogs but not harmful to humans, is also forcing Cargill to adjust. The disease has been estimated to have led to the deaths of 150 million to 200 million Chinese pigs, according to Rabobank, impacting about one-third of China's pork production and reducing sales for animal feed makers like Cargill.
That steep decline in the world's biggest hog herd is already lifting meat prices elsewhere, Mr. Dines said, and benefiting Cargill's beef and poultry businesses. Springtime flooding also delayed cattle shipments and cut consumer demand for meat to grill, which reduced quarterly profit in Cargill's North American meat operations.
After adjusting for one-time costs and events, Cargill said the company earned $476 million, versus $809 million in the same quarter last year. For the full year, Cargill's net profit fell 17% to $2.56 billion, the lowest level since 2016, and revenue declined 1% to $113.5 billion.
Write to Jacob Bunge at email@example.com
(END) Dow Jones Newswires
July 11, 2019 15:50 ET (19:50 GMT)
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