David Cheetham, chief market analyst at brokerage firm XTB, called the second-quarter results from Cargill “a touch disappointing”.
Cargill, a meat industry colossus, posted a 6% dip in profits this week. It said the fall was largely due to a big grain and soybean harvest in the US – an ongoing issue that has squeezed its bottom line performance.
As a matter of policy, Cargill does not disclose how much of its soybean harvest is used to support its meat empire. But the agrifood giant does cultivate soybeans for use in food, animal feed and biofuels.
“The outlook for these commodities going forward appears to be seen by many as more of the same as far as the supply glut goes, and this could remain a headwind for the firm for quite some time yet,” Cheetham told GlobalMeatNews.
“To illustrate the impact that this has had on the business, the unit that deals in grains and oilseeds was the only one of the four company-wide to see a decline in quarterly earnings but this in itself was enough for the group to report a drop.”
While global demand for grain and oilseed remains robust and has continued to grow, Cargill has said the pace of this has been outstripped by an increase in supply.
“Investment in a $90m biodiesel plant, the third of its kind for the company, shows there are plans afoot to expand certain parts of the business and, should the aforementioned supply glut come to an end, then the future prospects would increase markedly,” added Cheetham.
Crop and soybean production has been growing steadily in the US at the same time as demand rises in countries like China. But the US Department of Agriculture expect soybean exports to fall in 2018, due to stronger-than-expected competition from Argentina and Brazil, the latter of which claims to be the world’s largest soybean producer.