Louis Dreyfus Company trumpeted its “market intelligence” and the worldwide scope of its operations as it unveiled a leap in half-year earnings, amid “enhanced market volatility and continuing price increases”.
Michael Gelchie, the Louis Dreyfus chief executive, flagging “turmoil” in agricultural commodity markets, said “uncertainty” had only been enhanced when Russia’s invasion of Ukraine added to jitters over the likes of drought setbacks to crops, shipping congestion and the resurgence of Covid in China.
“The Russia-Ukraine crisis and its consequences on logistics put pressure on wheat, corn and vegetable oil supplies, and resulting concerns over potential global shortages added to already high market volatility and prices,” the group said.
Such conditions required LDC to exploit its “vast network” and its “proprietary market intelligence built over decades… to deliver on our customer commitments”, Mr Gelchie said.
Indeed, in the January-to-June period of 2022, the group said that it “leveraged its global footprint and market intelligence to capture profitable origination and sales opportunities”, raising revenues by 27% year on year to $30.23bn, its best first-half performance in eight years.
Earnings jumped by 97% to $663m, the highest January-to-June result on data going back to 2011, and as much as its first-half earnings in the previous four years combined.
‘Strong margins’
The LDC value chain division, which covers markets from grains to freight, led the improvement, reporting an 80% rise to $945m in operating profits, on revenues up 19.8% at $20.91bn.
The group noted that global demand for grains – in particular for corn, sorghum and wheat – “remained strong throughout the period as destination countries secured supply”, in the face of “uncertain crop size prospects and concerns over ongoing supply chain” hiccups.
Furthermore, “ethanol prices were bolstered by the rally in oil prices, as global demand for biofuels continued to grow to support carbon emission reductions”.
The group also highlighted that its “processing activities contributed significantly” to the division’s improvement, “thanks to strong crushing and crack margins, particularly in the US, Canada and Brazil”.
‘Successful hedging’
The other main operating division, merchandising, reported a 22% rise in profits to $430m, on revenues up 45% at $9.41bn.
In cotton, the division raised operating profits thanks to expanded trade volumes, “significant” US warehousing activity and “a successful hedging strategy”.
Profits in coffee expanded too, despite “supply issues caused by limited crop sizes and returning consumer demand”.
The coffee unit overcame “this challenging context through active hedging and risk management actions”, besides reaping “strong origination margins as it continued to grow its business in Asia, particularly in Vietnam and India”, countries best known in coffee for robusta exports.
In sugar, “improved” margins in India helped LDC offset a dent to its Brazilian earnings from “slow farmer selling”.
‘Extremely uncertain context’
Mr Gelchie said that the group was continuing “to face up to regional and global challenges and disruptions, and navigate an extremely uncertain context”, reflecting in part the Ukraine war.
However, LDC noted that it was only reliant to a limited extent on Russia and Ukraine for the agricultural commodities it traded.
In calendar 2021, “products originated by LDC from these two countries represented less than 4% of group net sales in dollar terms”.