Is Olam International on a commodities slump?

It is having trouble procuring cotton supply and keeping margins afloat as prices fall precipitously.

These are dragging on the firm's gains in its agricultural products segemnts, such as edible nuts and food stable, which are otherwise performing well.

Here's more from DBS:

Cotton disappointed again as Olam was unable to procure cotton from Australian farmers who withheld supply in anticipation of higher prices.

In addition to weak demand for timber, Industrial Raw Materials volumes and net contribution (NC) declined by 7% and 49% y-o-y respectively. Commodity Financial Services (CFS) also struggled, leading to a 91% y-o-y fall in NC.

These two segments offset the 18-38% rise in NC from Edible Nuts, Confectionery and Food Staple segments.

FY12-14F profit cut by 13-31%, as we trim margin outlook on a projected softer commodity price environment. We now assume group FY12-14 NC/MT to range between S$131-138 versus S$144-151 previously.

With farmers expected to sell their cotton stock over course of 1Q-2QFY13, we also bump up FY13 Industrial Raw Material output by 5% while NC/MT margins should recover from S$90 in FY12F to S$114 in FY13F.

Expectations of soft 4QFY12 results due to lingering weakness in the cotton segment and negative sentiments surrounding supply manager stocks after the recent set of poor results.

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