Soaring levels of default in the cotton market may fuel a shake-up in pricing, Ivan Glasenberg, the Glencore chief executive, said, as the commodities giant revealed it too had fallen foul of farmers reneging on deals.
Many other commodities markets had witnessed high levels of default in volatile markets, with buyers and sellers walking away from contracts falling out-of-the money, Mr Glasenberg told Agrimoney.com.
In cotton – in which the International Cotton Association, which arbitrates on international contract disputes, has already opened more than twice as many proceedings as in a full year – this may see a move towards "spot rather than long-term" pricing in physical markets.
Similar problems were "why trading in iron ore went to spot basis", he said.
The comments followed Glencore’s admission that it had, like rivals such as Louis Dreyfus and Noble Group, suffered cotton defaults, losses which helped drag the group’s profits in agriculture lower, in contrast to hefty gains in metals and energy.
A rise in cotton prices to a record high earlier in 2011 "resulted in an industry-wide environment of elevated contract performance risk", the group said.
"Glencore, along with many other merchants, incurred ‘opportunity costs/losses’ associated with various suppliers not meeting their delivery commitments."
The company’s agriculture marketing sub-division saw operating profits decline 23% to $92m in the first half of 2011, despite rises of 15-30% in volumes of grains and oilseeds transported as Glencore exploited an easing in Black Sea crop export curbs.
"The lifting of the Russian and Ukrainian export bans and duties finally allowed us to ship wheat and barley stocks out of these countries," the company said.
"Our network of country elevators and ownership of ports facilitated the rapid exports of these goods."
Glencore’s other agriculture sub-unit, industrial, fell to an operating loss of $17m, from a profit of $6m a year before, dented by "poor" margins on biodiesel production in Europe.
"Significant overcapacity still exists" in the industry in Europe, Glencore said, while prices of the main feedstock, rapeseed, hit a record in January on the Paris futures market, and have remained at historically high levels.
The biodiesel losses more than offset the benefit of a 58% jump to 2.4m tonnes in the volumes of crops Glencore produced or handled.
However, profits in mining and metals soared to lift group earnings for the half 57% higher to $2.45bn, on revenues up 32% at $92.1bn.
Glencore shares closed 0.3% lower at 388.5p in London.