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Louis Dreyfus stems profit slide, but headwinds persist

Ample supply, tepid economy still weigh on commodities


Paris | Reuters — Agricultural trading giant Louis Dreyfus Company eked out a small rise in 2016 first-half net profit, saying steady shipped volumes helped it weather another tough period in commodity markets.

Louis Dreyfus has been grappling with ample supply, lower prices and slower economic growth that have cut margins, while also going through a leadership shake-up under main shareholder Margarita Louis-Dreyfus.

The privately owned company said on Thursday that net income was $135 million compared with $130 million in the first half of 2015, with lower costs and tax offsetting weaker underlying profit (all figures US$).

Operating profit for its business segments fell to $546 million from $638 million as net sales dropped to $23.5 billion from $26.4 billion.

Unexpected capital inflows in commodities in the second quarter added to the difficult trading conditions, it added.

“Posting reasonable results during such periods and a context of continued oversupply illustrates our ability to adjust to changing conditions,” CEO Gonzalo Ramirez Martiarena said in an interim results report.

It said shipped volumes rose one per cent in the first half, supported by grain and oilseed exports from South America and healthy flows at its metals business.

“With a one per cent increase in volumes they appear to be keeping or slightly increasing market share,” James Dunsterville, analyst with Geneva-based Agflow, said.

“But there is no comment on the situation from July onwards and I think the second half is proving very difficult for the trade.”

Autumn corn and soybean harvests in the United States, expected to yield record volumes, will be a major factor for trading firms in the second half of the year.

Recent rallies in sugar, coffee and juice could also influence firms such as Dreyfus that have wide exposure in soft commodities. Sugar futures hit four-year highs this month.

Dreyfus, part of the so-called ABCD quartet of trading giants alongside Archer Daniels Midland, Bunge and Cargill, had previously reported a plunge in net profit for 2015 and confirmed it was seeking partners to help some businesses expand, starting with its fertilizer division.

It did not give any update on partnerships in the first-half report.

The unfavourable landscape has also led Louis Dreyfus’ rivals to reorganise. ADM said last month it was pulling back in ethanol and exploring sales of corn dry mills that produce the biofuel as weak ethanol results contributed to lower quarterly profits.

In the first half, margins at Dreyfus’ fertilizer business remained hurt by weak demand from farmers, leading it to focus on key markets including in Africa, it said.

But its juice platform, also earmarked for a joint venture partner, posted improved results, helped by inventory cuts and marketing changes, it said.

The group, which this year changed its name to Louis Dreyfus Company from Louis Dreyfus Commodities, again restrained capital expenditure. It came to $132 million, close to the $135 million in the first half of 2015, with a focus on existing assets.

Gus Trompiz is a commodities correspondent for Reuters in Paris.

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