Profit downturn continues for global ag traders

by Ryan Hanrahan

Global bumper harvests, a downturn in crop markets, and slowing demand for farm equipment are shrinking profits and lowering future outlooks for some of the world’s top crop traders and equipment manufacturers, including Bunge Global SA, CNH Industrial, Archer-Daniels-Midland Co., and AGCO Corp.

Crop traders

Bloomberg’s Gerson Freitas Jr. and Tarso Veloso reported that “bumper harvests across the globe are shrinking profits for Bunge Global SA, with the downturn in crop markets providing the company with ‘limited visibility’ for the rest of the year.”

“The St. Louis-based company, one of the world’s largest agricultural commodities traders, posted earnings of $1.73 a share in the second quarter, the lowest since the start of the pandemic, according to a statement on Wednesday. Results also missed analyst expectations by 10%,” Freitas Jr. and Veloso reported. “Profits for Bunge and its rivals including Cargill Inc. and Archer-Daniels-Midland Co. have been under pressure from ample grain supplies, reversing the windfalls from previous years, when crop losses and Russia’s invasion of Ukraine sent grain prices surging. Margins from processing soybeans into meal and oil — a key earnings driver — have also eroded.”

In addition, Reuters’ P.J. Huffstutter and Tanay Dhumal reported that “global grains merchant Archer-Daniels-Midland Co shares dropped 2% on Tuesday after the company missed Wall Street expectations for second-quarter profit, which were hit by lower soy crush margins and waning demand for U.S. crops.”

“Such lower profits reflect the challenge global grain merchants and oilseed processors now face, as crop prices hover at nearly four-year lows due to hefty global stockpiles of corn and soybeans,” Huffstutter and Dhumal reported. “The company’s Ag Services and Oilseeds arm suffered a 56% year-on-year plunge in quarterly operating profit due to a slew of challenges, from South American farmers slow to sell their crops amid rising export buyer demand, to global soybean crush margins getting squeezed and biodiesel margins tightening.”

“The Nutrition segment posted a 36% drop in its quarterly operating profit, due in part to higher manufacturing costs and continued downtime at its Decatur East soy processing plant,” Huffstutter and Dhumal reported. “The company did not comment on the multiple ongoing U.S. government investigations related to accounting irregularities.”

Equipment manufacturers

On the equipment side, Reuters’ Abhinav Parmar reported that “farm and construction equipment maker CNH Industrial on Wednesday lowered its full-year profit forecast for the second time, as slowing demand for its tractors and combines keeps hopes for a recovery in the second half of the year muted.”

“A sharp drop in crop prices coupled with rising production costs have lowered farm incomes around the world, forcing farmers to rethink upon purchasing heavy equipment, thus setting a gloomy demand environment for agriculture equipment makers,” Parmar reported. “The Basildon, UK-based company now expects its agriculture segment net sales to be down between 15% and 20% year-over-year, compared with a fall of 11% to 15% expected previously.”

Chemicals companies fairing slightly better

Reuters’ Ludwig Burger reported that “BASF is banking on regaining pricing power to speed up earnings growth in the second half after the German chemicals group’s adjusted profit edged 0.6% higher in the second quarter, with China playing a key role.”

“BASF CEO Markus Kamieth, who took the helm in April, said much depended on demand growth in China. After three years of lower-than-expected economic growth there, chemicals makers in the country have been exporting excess production globally at marked-down prices,” Burger reported. “…The German chemicals giant confirmed its forecast for 2024 earnings before interest, taxes, depreciation, and amortisation (EBITDA) before special items to reach between 8 billion euros and 8.6 billion euros, which would be as much as 12% higher than the 7.7 billion reported for 2023.”

Profit downturn continues for global ag traders was originally published by farmdoc.