Glencore sees opportunities in U.S. drought
LONDON |
(Reuters) - The impact of the worst U.S. drought since the 1930s on
grain markets is opening up opportunities for trade house Glencore,
especially after its takeover of Canadian grain handler Viterra Inc,
Glencore officials said.
"In terms of the outlook for
the balance of the year, the environment is a good one. High prices,
lots of volatility, a lot of dislocation, tightness, a lot of arbitrage
opportunities," Chris Mahoney, director of agricultural products, told a
conference call on Tuesday.
"I
think we will both be able to provide the world with solutions, getting
stuff to where it's needed quickly and timely, and that should also be
good for Glencore."
Mahoney said
the hot, dry weather in the United States, the world's biggest maize
(corn) producer, will force a change in trade flows.
"The
U.S. weather starting in mid-May...has been among the worst three or
four years of the century, comparable to the dust bowl years of the
mid-30s," he added.
The drought has
sent corn and soy prices to all-time highs, prompting G20 nations to
mull an emergency meeting and raising the threat of a global food crisis
such as the one in 2008, when surging prices of staple crops provoked
rioting in some countries.
Earlier
this month, Germany's Commerzbank removed agricultural products from a
commodity index fund after accusations that speculation has pushed up
food prices and fuelled unrest in some poor countries.
Mahoney
questioned whether production and export forecasts from the U.S.
Department of Agriculture would have to be revised again after being
slashed in August.
"The U.S. corn
crop, which in May was estimated to be 380 million tonnes is now
estimated to be only 270 million tonnes, but that may still be high," he
said.
He also questioned whether
the United States would be able to export 33 million metric tons of
corn, as forecast this month by the USDA, down from a previous estimate
of 48 million metric tons.
"This
is a very unusual situation, we've had crop losses in 2008, there was a
wheat problem, but I think we've seen nothing on the scale of this."
Glencore
reported a smaller than expected drop in first half profit on Tuesday
and said its $30 billion bid for miner Xstrata was not a "must-do" deal.
RUSSIAN EXPORT BAN?
Russia,
also hit by drought, last week ruled out a ban on grain exports during
2012, but Mahoney said the situation would have to be monitored closely.
In 2010, Russia shocked markets with a ban on exports when the scale of harvest losses became clear.
"I
think if the current export pace continues and if... they get most of
the way through their exportable surplus by November or December, they
could possibly have a rethink," he said.
Glencore
has a hedging strategy in place so even if there was a ban on exports,
there would be scant impact on the group, Mahoney added.
The takeover of Viterra was timed well, before the sharp run-up in grain prices, Chief Executive Ivan Glasenberg said.
In
March, Glencore offered Viterra C$6.l billion for the company, which
owns the biggest share of Western Canada's grain storage and farm supply
outlets, as well as nearly all grain storage capacity in South Australia.
"Viterra
makes our business more global and where you might have some issues
from time to time in Russia or Ukraine, in Canada and Australia we're
not going to have such issues," Mahoney said.
The
acquisition will allow Glencore to compete in the big leagues of
agriculture trading, which are dominated by Archer Daniels Midland Co,
Bunge Ltd, Cargill Inc and Louis Dreyfus Corp.
(Reporting by Eric Onstad; editing by Keiron Henderson)
Source: http://www.reuters.com/article/2012/08/21/us-grains-glencore-idUSBRE87K0OY20120821
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