Grains trader Cargill Inc has reported a 14% jump in fiscal third-quarter 2019 net earnings, as corporate spending cuts buoyed profits even as the U.S.-China trade war and a flurry of other challenges dragged on all four business units.
The Minnesota-based food commodities firm, the largest privately-held U.S. company, reported a slump in revenues for all its business units.
During the quarter, the trade war did show some signs of thawing as China, traditionally the top U.S. soybean buyer, again began buying agricultural commodities. But U.S. exports have remained vastly below past volumes.
Meanwhile, Cargill noted that African swine fever hit production of the meat in China, the world's top hog market, eroding animal nutrition business results.
Trade Turbulence
"The trade turbulence also negatively affected soybean crush operations in China, as did lower demand for soybean meal for feed following the culling of hogs to control the spread of African swine fever," the company said in its earnings statement.
The company added, "In North America, soy and canola crush operations ran at high capacity, but the near absence of the Chinese market for plentiful U.S. soybean stocks reduced profitability."
U.S.-China trade tensions and other supply chain disruptions also continued to drag on earnings in origination and processing, the company's primary grain-trading unit.
Earnings for its starches and sweeteners business also slumped as U.S. ethanol prices hit historic lows.
Beef Bright Spot
The biggest bright spot was the North American beef business, boosted by domestic and export demand for beef and egg products. Growing sales of aquatic feeds in the North Sea region and North America also bolstered the animal nutrition and protein business.
The company said those struggles, though, were "offset by reduced spending among corporate functions and other cost reductions."
Cargill did not provide a break-out of its cuts. In recent months, Cargill executives have described using technology to reduce spending in areas ranging from running staff meetings and simplifying human resources operations to shifting research projects to cloud-based computer systems.
Corporate Structure
Cargill, the second-largest U.S. beef packer, has been overhauling its corporate structure in recent years, largely in reaction to a fundamental shift in its core business model: acting as the middleman between farmers and the companies that buy their grain.
But that 150-plus year traditional model has been squeezed by mounting competition, a global grain glut, shifting global trade flows and a rise in digital tools and on-farm storage that gives producers more control in traditional sales channels.
Cargill said its net earnings on a U.S. GAAP basis for the quarter ended Feb. 28, 2019, were $566 million, up 14% from $495 million a year earlier.
Cargill's third-quarter revenues fell 4% to $26.9 billion, bringing the year-to-date figure to $83.5 billion. The company's quarterly adjusted operating earnings were $604 million, up 8% from $559 million.
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