U.S. grain handlers cut costs while talking up signs of recovery

Reuters and Saskatoon newsroom

CHICAGO, Nov 2 (Reuters) – U.S. grain handlers are further cutting operating costs even as they point to signs that a bruising slump driven by a global food commodities glut may be nearing a bottom.

Bunge Ltd, Archer Daniels Midland Co and Andersons Inc have all said conditions appear to be getting better for grains processing and handling, after four years of massive harvests reduced price volatility and clipped margins.

Financial results at most of the major Canadian grain handlers are hard to determine because Richardson, Paterson and Parrish and Heimbecker are privately owned and do not issue public financial reports. Viterra is part of the conglomerate Glencore, which does not break out financial reporting for just Viterra, but it did note in its half year report that while the record large crop in Australia last year lifted Viterra Australia’s handling operations, Viterra Canada’s results were “satisfactory, but below expectation as low prices, farmer retention and some crop quality issues pressurised margins.”

Bunge plans to reduce 2018 capital spending by at least seven percent to about US$650 million, and ADM said this week it will decrease outlays by about 20 percent to $800 million. ADM has also cut jobs to become more competitive and said it would shift funds to value-added businesses from its grain buying and oilseed crushing operations.

“I’m optimistic that we are, if not at the bottom, very close to it,” Bunge chief executive Soren Schroder said on a conference call on Wednesday, after the company posted a 28 percent decline in quarterly income on flat revenue.

Schroder has made similar comments before, leaving some analysts skeptical of his rosy outlook.

“Record harvests that continue to happen year after year do pose a difficult trading environment for Bunge and ADM, and I don’t see a sign of that letting up,” Morningstar analyst Seth Goldstein said.

Bunge’s South American business soured in 2017 because the company pre-booked transportation for a rich harvest and farmers opted to withhold soybeans due to low prices.

As a result, next year Bunge will not guess as much on when farmers will sell, according to the company. Market conditions should also benefit from a decline of wheat supplies, it added.

Global inventories of corn and soybeans are expected to tighten too, ADM’s CEO Juan Luciano told analysts on Tuesday.

“We’re starting to see the possible green shoots of recovery in certain areas,” he said, after ADM’s quarterly earnings tumbled 44 percent from a year earlier.

Luciano noted he was not expecting significant changes in conditions.

And ADM’s cost-cutting and shifting of funds show its executives are not assuming a robust recovery, according to Farha Aslam, analyst for financial services firm Stephens Inc.

Challenges from large global supplies hit Cargill Inc’s latest quarterly earnings in September, when the company said origination and processing results were down from a year earlier.

However Cargill’s net earnings for the quarter were $973 million, up 14 percent from $852 million a year ago.

Revenue for the quarter totaled $27.3 billion, edging ahead of last year’s $27.1 billion.

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