Cargill Profit Drops on Trade, Flooding Challenges -- Update
12 July 2019 - 06:05AM
Dow Jones News
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 jacob.bunge@wsj.com
(END) Dow Jones Newswires
July 11, 2019 15:50 ET (19:50 GMT)
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