In this file:
· Major grain traders face one-two punch from U.S. floods, trade war
· Cargill rejects Cerrado soy moratorium, pledges $30 million search for ideas
Major grain traders face one-two punch from U.S. floods, trade war
By Karl Plume, Reuters
via WTVB AM (MI) - July 10, 2019
CHICAGO (Reuters) - Severe U.S. weather likely dented earnings for large grain companies including Archer Daniels Midland Co and Bunge Ltd for a second straight quarter, adding to headwinds from a still-unresolved U.S.-China trade war, analysts and economists said.
ADM and Bunge, as well as peers Cargill Inc [CARG.UL] and Louis Dreyfus Co [LOUDR.UL], known as the ABCD quartet of global grain trading giants, faced processing-plant downtime, rail and barge shipping delays and other supply uncertainty this spring as historic floods ravaged the central United States.
The weather woes are heaping more pain on the battered U.S. agricultural sector already hard-hit by a years-long crop supply glut and the U.S.-China trade war now entering its second year. The tariffs China imposed on soybean exports from the United States in retaliation for U.S. duties on Chinese goods curbed shipments of the most valuable U.S. export crop.
The excessive rains and flooding could also have a lasting impact on the grain merchants, whose latest round of quarterly earnings will start this week. ADM and Cargill are viewed as particularly vulnerable due to their outsized U.S. footprints. Reduced U.S. corn and soybean plantings will likely cut available crop supplies in the United States, potentially driving up raw material costs and squeezing margins.
"They thrive on volumes and margins and both of those are going to be depressed in the coming year with the bushels being smaller and the margins likely not being there," said Kevin McNew, chief economist with Farmers Business Network. "Export business is just going to fall off the cliff, especially for corn."
The U.S. corn crop was more affected by floods than soybeans, because soy can be planted later in the season.
The first of the companies scheduled to report is privately held Cargill, which announces fiscal fourth-quarter earnings on Thursday.
The results will cover the March-to-May period, when flooding disrupted grain movement, including export shipments, and the year's second "bomb cyclone" blizzard temporarily shuttered at least six Cargill grain handling facilities and a beef processing plant.
Cargill and ADM both own barge companies that haul grain and other products on the Mississippi River and its tributaries. Grain barge movement so far this year is down about 37% from a year ago, according to U.S. Army Corps of Engineers data, due largely to prolonged river closures triggered by floods.
Cargill is expected to report weaker results compared with the very strong earnings of the year-ago quarter, due partly to expected lower profit in its origination and processing unit, said Bill Densmore, senior director of corporate ratings at Fitch Ratings.
Bunge and ADM will follow, with second-quarter results covering April, May and June scheduled for release on July 31 and Aug. 1, respectively. Privately held Louis Dreyfus is expected to issue interim first-half results in the autumn.
Shares of publicly traded ADM and Bunge are hovering just above three-year lows notched this spring as mounting concerns about U.S. plantings and trade fueled investor nervousness.
UNEVEN IMPACTS ...
Cargill rejects Cerrado soy moratorium, pledges $30 million search for ideas
· The 2006 Amazon Soy Moratorium — a voluntary agreement credited with stemming deforestation in the Amazon due to soy growing over the last decade— is the model put forth in the 2017 Cerrado Manifesto, intended to catalyze action to stop rampant clearing of forests and native vegetation in the savanna biome.
· But now Cargill, a trading firm active in the Cerrado, has published an open letter to its Brazilian soy producers avowing that it will not support a soy moratorium in the savanna biome. Bunge, Archer Daniels Midland, Amaggi and other commodities firms have been resistant to the Manifesto’s call to action as well, which could doom it.
· Cargill’s nixing of a Cerrado soy moratorium came after the firm announced its sustainable soy action plan, along with a $30 million fund to limit Cerrado forest loss, and amid international pleas to curb Brazilian deforestation prompted by the new EU / Mercosur (Latin American economic bloc) trade agreement.
· One possible reason Cargill and other commodities firms and producers are resisting the Cerrado Manifesto: under the Amazon Soy Moratorium producers simply moved their operations out of the Amazon and into the Cerrado. But the Cerrado Manifesto would prevent further deforestation for soy in the biome, potentially curbing rapid production expansion there.
by Sarah Sax, Mongabay
10 July 2019
June proved to be a month of mixed, and contradictory, soy signals from Cargill, the largest privately owned company in the U.S., and Brazil’s second largest soy trader. The firm has extensive soy operations in the Cerrado — a biodiverse savanna biome experiencing rapid deforestation as agribusiness converts vast areas of native vegetation for cattle and crops.
Last month, Cargill announced its ambitious soy action plan, committing the firm to transforming its “supply chain to be deforestation free, while protecting native vegetation beyond forest.” Included in that plan was a $30 million fund to source ideas to protect Brazil’s Cerrado biome.
Then Cargill’s CEO posted an op-ed saying that the industry as a whole is poised to fall short of the goal of the New York Declaration on Forests, of which Cargill is a signatory, to halve deforestation by 2020 in key supply chains, including soy, while recognizing the urgent need to reduce native vegetation clearing in the Cerrado.
Coming as an even bigger surprise was an open letter from Cargill to Brazilian soy producers published online on June 24th, stating the company’s steadfast opposition to a proposed Cerrado soy moratorium. Environmentalists say that such a moratorium (as called for in the Cerrado Manifesto), would build on more than a decade of conservation success achieved by the Amazon Soy Moratorium, widely acknowledged for its key role in reducing deforestation in that biome since 2006.
“Cargill has just announced the creation of a $30 million fund to seek and foster innovative ideas that will contribute to ending deforestation in the Cerrado biome, [while] at the same time supporting the prosperity of rural producers and local communities,” wrote Cargill in the letter. “In a very objective way, the creation of this fund does not change the company’s position of being against the creation of a ‘Cerrado Moratorium’ and of continuing to participate and contribute… to the Cerrado Working Group (GTC).”
But critics argue that Cargill can’t have it both ways. They say that the long-term solutions needed to curb Cerrado deforestation already exist in the Amazon Soy Moratorium model, and that by refusing to consider any kind of moratorium in the Brazilian savanna, as called for in the Cerrado Manifesto, Cargill is pandering to its producers. At the same time, the firm will be able to publicize its $30 million deforestation idea fund as proof of Cargill’s green credentials in PR to consumers.
“Cargill is trying to position itself as being concerned about the wholesale destruction of Brazil’s forests while at the same time not taking any action to address it,” Says Glenn Hurowitz, CEO of the environmental advocacy group and NGO Mighty Earth. “Their desire to be seen as sustainable while maintaining links to the worst deforesters in Brazil is at the heart of these contradicting statements.”
In a written response to a Mongabay query, Cargill wrote: “We don’t support a [Cerrado] moratorium that simply cuts off farmers for exercising their legal land rights. We do support working alongside our industry to consider short term actions that would support farmers so livelihoods are not adversely impacted, as the wider industry considers how to provide longer term solutions.”
Soy’s increasingly concerning footprint ...
Legal deforestation ...
What’s good for the Amazon could be good for the Cerrado ...
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