The Swiss mining and trading house, whose agricultural arm includes Canadian grain handling giant Viterra, aims to slash net debt to $17-$18 billion by the end of 2016, $1 billion more than previously planned (all figures US$).

The company’s debt burden had reached a peak of $30 billion last year, one of the highest levels in the sector.

“That (debt) structure would allow for the resumption of dividends in 2017 on the basis of what we know today,” chief financial officer Steven Kalmin said.

Glencore suspended its dividend last year after a slump in the prices of products such as oil and copper took its toll. BHP Billiton and Rio Tinto cut shareholder payouts last month as they braced for the worst commodities downturn in a generation.

The slide in prices was largely behind a 32 per cent fall in group adjusted earnings before interest, tax, depreciation and amortization (EBITDA) to $8.7 billion, in line with analysts’ expectations.

Glencore differs from other mining groups by having a large and growing marketing division which is more resilient during commodity downturns.

Core profit from its trading arm fell only 11 per cent while profit from its mining and industrial business slid 38 per cent.

The company noted its agricultural marketing EBIT was down 46 per cent in 2015 at $461 million, compared to $856 million in 2014. The drop was “in large part due to the high comparable base” set by Canada’s “exceptionally strong” harvest in 2014, Glencore said.

Thus, Viterra’s Canadian operations “contributed solidly” in 2015 but couldn’t match the 2014 results, while Viterra’s Australian results were “in line with expectations.” Weaker currencies in both Canada and Australia also cut into Glencore’s U.S. dollar-denominated returns.

Agricultural earnings also dropped as a result of Russia’s “punitive” tax on wheat exports, imposed during the first quarter of 2015.

“Notwithstanding these external factors, the overall (agricultural) business performance was solid, given the reduced trading opportunities, constrained by low market prices and volatility,” the company said in its report.

China steady

CEO Ivan Glasenberg said the company was prepared for further potential drops in commodity markets, but noted that despite a slowdown in growth in top raw materials consumer China, Glencore’s business was holding up well.

Business in China is rebounding after a campaign against corruption delayed infrastructure projects last year, he said.

“Our order book in China is good. I think our copper sales into China are one of the best years we’ve seen.”

Investors concerned about the prospects for a prolonged period of low prices put pressure on Glencore last year to slash net debt, resulting in a series of measures including a capital raising and asset sales. Debt fell to $25.9 billion at the end of 2015.

Glencore lifted its target for disposals by $1 billion to $4-5 billion and said it “expect(s) to reach agreement” on the sale of a minority stake in the agriculture business in the second quarter of 2016.

“I believe the market was looking for more impetus and more progress particularly with respect to the agricultural stakes than has been announced this morning,” said Ken Odeluga, market analyst at City Index.

— Eric Onstad is a commodities correspondent for Reuters in London, England. Additional reporting for Reuters by Dmitry Zhannikov, Kit Rees and Sudip Kar-Gupta. Includes files from AGCanada.com Network staff.

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"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-(19)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 tonnes of corn, as forecast this month by the USDA, down from a previous estimate of 48 million tonnes.

"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 US$30 billion bid for miner Xstrata was not a "must-do" deal.

Russian exports

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 possibily 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, CEO 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, Bunge, Cargill and Louis Dreyfus.

— Eric Onstad is a correspondent for Reuters in London, specializing in commodities in the EMEA (Europe, Middle East, Africa) zone.

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