CHICAGO (Reuters) – U.S. agribusiness trading giant and exporter Cargill will maintain its long-term investment strategy for Russia and the Black Sea region despite the area’s devastating drought that triggered a temporary ban on exports, Cargill said.
“It does not impact our enthusiasm or our investment strategy for that region,” Cargill chief financial officer David MacLennan told Reuters after the company reported quarterly earnings more than doubled.
MacLennan also warned of the potential “choke points” to emerge in the U.S. grain supply chain, which is being pressed to deliver record volumes of wheat, soy and corn to the world.
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Cargill, a top U.S. grain exporter, major ethanol producer and top energy trader, operates in 66 countries. It is among Russia’s biggest foreign investment partners, investing more than $650 million in Russia’s agriculture and food industry.
This summer, Russia and the Black Sea region have suffered the worst drought in more than 100 years.
Russia, the world’s No. 3 wheat exporter last year after the United States and Canada, on Aug. 5 banned grain exports until Dec. 31.
This raised questions about the country’s ambition to become a reliable supplier to world markets and heightened concerns about foreign investment in the farm sector.
Cargill had to cancel exports out of Russia and is working with customers facing supply disruptions, MacLennan said.
“It’s obviously been a tragic situation,” he said.
Russia is a game changer for the world grain market, MacLennan said.
“It’s a very dynamic situation between North American harvest, the Russian wheat situation and Chinese demand for corn and beans,” MacLennan said.
Just three weeks ago, tight U.S. storage appeared to be the U.S. grain industry’s biggest problem, given a likely record corn and soy harvest this fall.
But with Russia’s export stoppage, nervous world buyers are booking huge amounts of U.S. wheat, corn and beans.
There are reports that U.S. export terminals in the Gulf of Mexico are booked until December.
“Three weeks ago, you could have speculated that it was a going to be a storage problem, now it’s going to be more around choke points for exports and supply chain logistics,” he said.
MacLennan said he was optimistic about the start of the first quarter for fiscal 2011, which began on June 1.
“We started the first quarter optimistic about the ability of our overall strategy and the breadth and depth of our portfolio to help us remain profitable over the fiscal year. What is going on in the world both economically in terms of economic recovery and terms of volatility in ag prices plays well to our strategy.”
