Cargill, Bunge Win Most Export Aid Since 1992 as Credit Slows
By Alan Bjerga
May 27 (Bloomberg) -- Cargill Inc., Archer Daniels Midland Co. and Bunge Ltd. are benefiting from the most government support for farm exports since 1992 as the U.S. steps up loan guarantees for foreign buyers unable to get credit.
About $4.35 billion was allocated to countries from Jamaica to Turkey through April 6 in the year that started Oct. 1 under the Export Credit Guarantee Program to underwrite loans that foreign banks grant for the purchase of corn, wheat and other U.S. farm products, government records show. That’s 40 percent more than in all of fiscal 2008 and almost triple 2007’s total.
The U.S. is supporting exports after the Department of Agriculture predicted farm shipments will drop 17 percent in the current fiscal year because of falling commodity prices. Profit declined 68 percent at Cargill and 98 percent at ADM in the most recent quarter, as the recession curbed demand for everything from fertilizer to livestock feed. Bunge reported its second straight loss last month.
The export-guarantee program is “the perfect tool for tight credit,” said Erick Erickson, an economist in Washington for the U.S. Grains Council, a trade group. It “allows the U.S. to satisfy some import needs that would otherwise go to other countries.”
The government loan guarantees, in existence since 1981, are helping finance U.S. agricultural exports in the face of the worst economic slump since the Great Depression. Banks and businesses worldwide have lost $1.47 trillion in writedowns and credit losses in the past 22 months stemming from the collapse of the subprime-mortgage market.
Weaker Economies, Prices
The economy of South Korea, the program’s largest customer, rose 0.1 percent in the first three months of 2009 after declining 5.1 percent in the final quarter of last year, according to government data. Russia’s government is revising its current forecast for a 2.2 percent decline in gross domestic product this year as its economic crisis worsens.
Slowing demand helped send U.S. wheat, corn and soybean prices down at least 28 percent from records reached last year. U.S. farm exports, which reached a record $115.5 billion in the year ended Sept. 30, will fall to $95.5 billion this year, according to USDA projections.
The loan-guarantee initiative “facilitates exports, creating and maintaining jobs for exporters, agribusiness in general, and the transportation sector” and helps U.S. banks provide credit to overseas counterparts, said Mark Rowse, director of credit programs for the USDA’s Foreign Agricultural Service.
Cargill
As of April 13, about $2.8 billion of the $4.35 billion allotment had been used for specific sales, according to government records obtained by Bloomberg under the Freedom of Information Act. Cargill, the largest privately held U.S. company, had benefited from $546.1 million in loan guarantees, 67 percent more than in 2007 and on pace to surpass its 2008 total.
The loan program has kept food flowing to developing nations at a time when banks are pulling back on financing trade, Lisa Clemens, a spokeswoman for Minnetonka, Minnesota- based Cargill said in an e-mail.
White Plains, New York-based Bunge has had its exports backed by $293.2 million in loan guarantees, more than nine times last year’s total, government records show. The company announced a quarterly loss of $195 million on April 23. Bunge has plunged 47 percent in the past year in New York trading.
While the program will cover only about 5 percent of this year’s expected shipments, they are useful to help keep importers buying U.S. products, said Deb Seidel, a Bunge spokeswoman.
“It provides importing countries the credit they need to purchase food,” Seidel said.
Archer Daniels
Archer Daniels, the world’s largest grain processor, was helped by $390.5 million in credits as of mid-April, behind the pace of more than $1 billion in guarantees last year. The total already is 16 percent above the company’s total for 2007, the records show. Decatur, Illinois-based ADM has dropped 37 percent in the past year in New York trading.
The loan-guarantee program, also known as GSM-102, was to help buyers of U.S. goods obtain financing that may not be available otherwise. Participating countries receive credit allocations, and then the USDA finds foreign banks that are acceptable risks and underwrites loans extended by U.S. banks or exporters.
The program is used more during times of slower global economic growth and tighter credit, such as during the early 1990s recession or the Asian financial crisis later that decade.
The loan guarantees maintain and expand markets during a slowing economy, with low default risk, said Erickson of the grains council.
South Korea
South Korea this fiscal year has purchased 2.09 million tons of corn and 88,470 tons of soybean meal using the guarantees, according to the U.S. Grains Council. In 2008, the third-largest importer of U.S. corn bought 8.42 million tons, according to USDA statistics.
Korea has switched sales from Brazil to the U.S. twice in the past six months to take advantage of the credits, resulting in $9.3 million of sales to Glencore Grain LLC and $25.5 million for Peter Cremer North America LP, said Byong Ryol Min, the Korea director for U.S. Grains.
Nations close to exhausting their credits as of April 6 include Russia, which had used $321.6 million of its $400 million allocation, and Mexico, which has gone through $99.9 million of its $125 million limit.
WTO Objection
U.S. competitors, including Brazil, have objected to the program. In 2004, the World Trade Organization ruled that the U.S. was providing improper trade assistance with its 1 percent cap on loan-origination fees that lowered the borrowing costs.
While the cap has been removed, Brazil still is concerned about the subsidies, according to Reinhold Stephanes, the country’s agriculture minister.
“Anything that harms our exporters and producers are to be questioned,” Stephanes said in an interview.
The Grains Council’s Erickson said he wants Congress to raise the program’s authorization to more than the $5.5 billion allowed under the 2008 farm bill.
“We believe that if Congress raised the cap it would be used, and it would be used well,” Erickson said.
To contact the reporter on this story: Alan Bjerga in Washington at [email protected].