Agriculture outlook provides bright spot for commodity traders

Glencore investors disappointed by the company's quarterly production report released this week - especially in metals - might want to look at agriculture for some better news.

Glencore's update on its own agriculture business revealed little - processed and produced volumes in the first quarter fell 15 per cent from the year before. But the read across from the quarterly results of agricultural traders Bunge and Archer Daniels Midland should provide some cheer for Glencore shareholders.

Glencore's agricultural unit saw earnings surge in 2014 thanks to record grain and oilseed crops around the world. The bulk of last year's $992m annual earnings before interest and tax came from grain handling and logistics.

Both Bunge and ADM had a good start to the year thanks to strong soyabean crushing margins and high export volumes from key grain and oilseed producers. They were also positive on the year's outlook. Juan Luciano, the chief executive of ADM, said he saw "good planting" and "plentiful crops" leading to a strong second half of the year for the company's grains and oilseeds teams.

Bunge's first-quarter earnings before tax for its four main business units almost quintupled to $373m, while ADM's segment operating profits for the three months to March rose 24 per cent to $855m.

Soren Schroder, chief executive of Bunge, told analysts that first-quarter grains and oilseed flows were strong overall - a good sign for Glencore investors.

One of the high points in Glencore's 2014 agricultural "industrial" business was higher soyabean crush volumes in Argentina. Mr Schroder described the country's harvest as "the largest crop we've had" and noted active deliveries and good margins.

"Global oilseed trading and distribution results were excellent, and our risk management teams guided both margins and global flows well," said Mr Schroder.

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Glencore is the largest grains exporter out of Russia and it would have benefited from the strong exports following a bumper crop in 2014. Analysts say the grains export tax imposed by Moscow in the first quarter had minimal impact on flows out of Russia.

One area of weakness in the companies' operations was ADM's ethanol business, which suffered from low margins due to low oil prices. The unit saw first-quarter operating profit plunge 70 per cent to $42m.

In its first-quarter production report, Glencore said output volumes of biodiesel fell 37 per cent due to "a scheduled maintenance shutdown at Biopetrol and reduced production at Renova, in response to lower esterification margins".

Nevertheless, the rebound in crude prices to almost $70 a barrel are likely to help biofuel margins recover. On its corn ethanol business outlook, ADM said "conditions and margins have been improving since late March".

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