Archer Daniels sees bumper harvest boosting grains

02.11.2016

A projected record U.S. harvest is set to boost Archer Daniels Midland Co.'s grain trading business for the remainder of the year and extend a crop-export surge, the company's chief executive said Tuesday.

ADM's network of grain terminals, railcars and barges, already laboring to direct a heavy flow of U.S. crops to overseas buyers, will continue to move heavy volumes of corn, soybeans and wheat into the beginning of 2017, lifting profit margins in one of the company's largest segments.

"There is a big crop coming," said Juan Luciano, ADM's chief executive, on a conference call discussing the company's third-quarter results. "That is good for ADM."

Commodity traders and processors like Chicago-based ADM, along with rivals like Cargill Inc. and Bunge Ltd., stand to benefit from what U.S. government forecasters have pegged as a record-breaking haul of corn and soybeans now being reaped by U.S. farmers. A string of four consecutive bumper crops in North America has pushed crop prices to low levels, translating to painfully low profits for farmers, but lower costs for the companies that buy grain from farmers to ship and process into flour, corn syrup and vegetable oil.

ADM's third-quarter profits, boosted by strength in U.S. crop exports that offset a drop in its oilseeds business, topped analysts' expectations Tuesday. Shares soared 7% on the upbeat outlook.

Mr. Luciano said that the availability and relative competitiveness of U.S. grain on global markets made it likely that North American exports would continue to do brisk business into the first quarter of 2017, even as South American grain begins filling bins and ships in Brazil and Argentina. The trend benefits ADM, which maintains more grain-trading infrastructure in North America than south of the equator.

Profit margins in the business, however, were unlikely to match those ADM saw nearly three years ago, when a capacity crunch on U.S. rail lines brought on by high traffic and a harsh winter pushed grain-trading profits to very lofty levels, Mr. Luciano said.

ADM is moving ahead with potential deals involving its corn dry mills, which grind, crush and roll corn to produce ethanol fuel and animal feed. Mr. Luciano told analysts that the company expects final proposals from a "short list" of interested parties by the end of 2016, after narrowing down proposals received in recent months from seven interested parties.

"We are waiting for the second round of bids," he said. ADM has been looking for ways to reduce invested capital in its business by at least $1 billion over time and in some cases has brought in partners to existing ventures, such as a 50% stake in a Brazilian port sold last year to Glencore PLC.

In the third quarter, ADM earned $341 million, or 58 cents a share, up from $252 million, or 41 cents a share, a year prior. Results were boosted by gains in ADM's agricultural services and corn-processing divisions, though oilseed profits fell by more than half, mainly due to a quarterly loss reported by Wilmar International Ltd., a Singapore-based commodity trader in which ADM maintains a roughly 22% stake.

Excluding losses on sales and other special items, per-share earnings fell a penny to 59 cents a share from 60 cents a year before. Analysts surveyed by Thomson Reuters had expected 46 cents a share.


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