This report was interesting reading…
This report was interesting reading…
This article was first published by 14:24 UK, 1st November 2011, by Agrimoney.com and appears here in full via http://www.agrimoney.com/news/adm-optimistic-despite-dent-from-high-crop-bills–3789.html
Archer Daniels Midland said it was “optimistic” about prospects despite a drop in quarterly earnings, as elevated crop prices squeezed margins for processing into products such as sweeteners and vegetable oils.
Patricia Woertz, the Archer Daniels Midland chairman and chief executive, said that the July-to-September quarter had “presented a difficult and challenging environment”, with oilseed crush margins “generally weak” and high corn prices limiting profits for processing the grain.
The period was marked by a “generally weak oilseeds margin environment and high corn costs”, she said.
While the agribusiness giant had hedged away some of these pressure through “good management of our commodity positions”, it was unable to prevent underlying earnings falling to $0.58, on a per share basis, from $0.67 a year before.
However, ADM was sanguine about prospects, noting “solid” demand for crops and agricultural products, and in particular growing demand for protein meal, “driven by emerging economies”.
Many developing countries, notably China, require extra feed for expanding livestock populations, to fulfil an increasing taste for meat.
Furthermore, the group forecast that margins on US ethanol production would be “good in the near term”, and said it was “optimistic” over prospects for the annual pricing round with customers of corn-based sweeteners such as high fructose corn syrup.
“Looking ahead, we see the margin environment modestly improving, and we are optimistic about the long term,” Ms Woertz said.
In the latest quarter, ADM’s operations turning corn into sweeteners and starches showed a particular decline in operating profit, of 81% to $28m, although this reflected in part an accounting anomaly, with the benefits of hedging taken in the previous quarter.
The oilseed crushing business suffered a 61% drop in operating profit to $115m, reflecting the weaker margins highlighted last week by rival Bunge, notably in Europe, where prices of rapeseed were kept high by disappointing 2010 and 2011 crops, while demand for vegetable meals has been soft.
However, these declines were offset in part by a doubling in profits from merchandising, as ADM leveraged on its position in the Black Sea to exploit Russia’s rocketing crop exports since the country in July lifted an 11-month ban on grain shipments.
Indeed, in corn and soybeans, “more global demand will be met from non-US supply”, ADM said, adding that this would enable the group to exploit its global spread of operations.
ADM’s revenues soared 30% to $21.9m during the quarter, raised by the higher value of agricultural commodities besides higher volumes of corn processed.
Including one-off effects, earnings rose by one-third to $460m, equivalent to $0.68 a share. ADM shares fell 2.6% to $28.19 in before-the-bell trading, on a weak day for world stockmarkets.
Here in the heart of southeast Minnesota farm country, everyone knows you don’t drink the water.
“It’s just not safe,” Linda Liebfried said one recent afternoon as she watched over a couple of toddlers, including her own 2-year-old daughter, at a day care center. “Every doctor will say not to drink it.”
The city’s water is contaminated with nitrates — chemicals from fertilizer that have been linked to cancer and can cause a potentially lethal blood disorder in infants. In Lewiston they come from nitrogen, applied every season on the fields that butt right up to the edge of town.
At the State Capitol and in town halls across the state, there is growing urgency to confront the problem. Thousands of private wells have been found to exceed state health limits for nitrates, and some communities have spent millions on filtration systems to clean their drinking water.
After four decades of progress against pollution from factories and cities, environmentalists say, Minnesota cannot take the next step in preserving its lakes and rivers without addressing one of the last, biggest sources of pollution: agriculture.
Unless farm runoff is vastly reduced — and soon — environmentalists say the state may never reclaim its heritage as the land of sky-blue waters.
“There are no mechanisms to curtail the huge loading of pollution, nutrients and sediment from agricultural runoff,” said Whitney Clark, executive director of the Friends of Mississippi, an advocacy group. “We have to find a new way to do that.”
Agricultural groups say farmers already are doing a lot to keep the state’s waters clean, and that farm pollution today is far less than it was decades ago.
More importantly, farmers say, it’s easy to blame agriculture in the absence of better research to identify the source of specific problems in each of Minnesota’s 81 watersheds.
“One of biggest issues is the knowledge gap,” said Warren Formo, executive director of the Minnesota Agricultural Water Resources Coalition. “What are agricultural effects on water quality, and how do we sort it out?”
A critical moment
Environmentalists say Minnesota’s water is much cleaner than it was decades ago, thanks to the 1972 federal Clean Water Act, better farm practices and more recent state laws.
Nonetheless, 40 percent of the state’s lakes and rivers are impaired, and with nearly half of the state’s land mass devoted to crops, the vast amount of chemical runoff that comes from agriculture is a major factor. Unless agriculture moves faster, they say, the $80 million a year in clean-water funds that will flow from the 2008 Legacy Amendment water could be wasted.
Because time is running out.
Earlier this month Deborah Swackhamer, a University of Minnesota water quality expert, presented the Legislature with a 150-page, 25-year plan to clean up the state’s waters. One of the primary recommendations: new laws that would require farmers to adhere to limits on pollution because the voluntary guidelines they are expected to follow now are not working fast enough.
“A lot could go downhill in the next 10 years,” she said.
For some agriculturally intensive parts of the state, including the area around Lewiston, that future is now.
Last year Jeff Broberg, a geologist and clean water activist who lives nearby, was shocked to find out he is already living “the poisoning of the rural landscape.” Broberg tested his well after the water coming out of his tap became fizzy from nitrogen gas. The results showed 19.2 parts per million of nitrates — more than twice the health limit set by state and federal regulations.
Now he and his wife drink bottled water — and “my wife is insisting we move,” he said.
Broberg can look out his window and see the cause. The farmer who rents his land grows corn, the state’s primary crop and one that demands enormous amounts of fertilizer. To make matters worse, up on the hill there’s a huge blue tank that holds manure from the 3,000-hog operation next door. Each season that manure is spread over the land, adding more nitrogen.
But he also sees below the snow-covered fields to what makes the southeast corner of the state so vulnerable to groundwater contamination: its particular geology.
Broberg’s house is smack in the middle of the state’s “driftless area,” known for its beautiful deep valleys, spring-fed streams and rich farmland.
This is where, 10,000 or more years ago, the last glacier stopped — right along a line now marked by Hwy. 52. Here, there’s no glacial “drift” — the 500-foot layer of gravel, dirt and rock that was left behind when the ice receded and that in other parts of Minnesota protects groundwater. Here, bedrock laced with fissures and sinkholes lies close the surface. It acts as a giant sieve, so that water — and pollutants — percolate down through layers of rock within hours of a rainfall and into underground aquifers.
Wells in the area’s shallowest aquifers, 80 to 150 feet down, have been banned since the 1980s because of health concerns. Broberg’s contaminated well is at 400 feet. A new one would have to be 500 feet and would cost $35,000.
Instead, he and the farmer who works his land, Bruce Gilbeck, had a talk out in the field. Broberg gave him a primer on soil and the area geology, and they came to an agreement. Gilbeck would change his practices in a way that would reduce fertilizer applications by more than a third. Gilbeck said he was following the best recommended practices for fertilizer application. Farmers, he said, don’t want to put down more than they need because it’s a waste of money. Still, cutting back on fertilizer will reduce his yields, he said.
“Nitrogen is a tough subject,” he added. “I have friends who are organic farmers. I joke all the time — if everyone went organic, there would be a lot of people starving.”
For Broberg’s well, it’s too late.
“This is not coming back,” Broberg said. “There is nothing I can do for the next generation to restore this water.”
Deeper wells are not always the answer. Lewiston drilled a deeper well 10 years ago, but now the lower rock has contaminated it with radium, a heavy metal that can cause cancer. The city is blending water from two wells to weaken both health risks and is debating whether to build a new filtration system. Meanwhile, many residents are spending $800 or more for filtering systems for their homes.
“We have to pay extra for Culligan,” said Courtney Matzek of Lewiston, who has an infant daughter and 3-year-old son. “It’s a financial burden.”
Officials from the Minnesota Pollution Control Agency say they can’t say whether the problem of nitrate contamination is getting worse, or how much of the contamination comes from agriculture, as opposed to septic tanks or other sources.
Still, long-term measurements from around the state show that, while there have been declines in agricultural contaminants such as phosphorus and bacteria, nitrate concentrations are getting worse.
A state Department of Agriculture survey of 52,000 wells found that 10 percent exceed health limits for nitrates, and the rate is higher in agricultural areas. But the estimate could be low: About half the well owners said they never tested their wells.
But regulation? Even some landowners with contaminated wells are doubtful that’s the answer. Two years ago, organic dairy farmers Arlene and LaVern Nelson put in a $26,000 well to protect their cows from nitrate concentrations that were nearly five times the health limit for humans.
Farmers, Arlene Nelson said, are trying to survive in an agricultural economy that rewards production over environmental stewardship. Regulations will only force the small ones out of business. The solution, she said, is to find a way they can thrive by “obeying the rules of nature instead of the rules of money.”
That kind of effort is already underway in communities around the state, including the Whitewater River Watershed district, where the Nelsons farm. Last week the watershed board started regular meetings with farmers and landowners around the middle fork of the Whitewater River and Logan Creek to figure out how reduce the overload of nitrogen and sediment.
“The main issue is to get farmers to act on this so we don’t have to have the Legislature put regulations on them,” said Rudie Spitzer, chair of the Whitewater Watershed Board, whose jurisdiction includes the river and trout streams in Whitewater State Park. “It’s coming. But if we can do the job ourselves, so much the better.”
But others, including many environmentalists, are skeptical. With rising demand and skyrocketing corn prices, the 8 million acres of Minnesota devoted to corn will only increase — as it has for the past decade.
Voluntary efforts are well and good, Broberg said.
“But I am dubious,” he added.
Tim Pawlenty, former governor of Minnesota and probable future Republican presidential candidate, has just finished an animated pitch to the Merrimack County (New Hampshire) Republican Committee.
Now it’s time for the obvious question: What does he offer that putative front-runner Mitt Romney doesn’t?
Pawlenty sidesteps. “I don’t get into comparing myself to other candidates,” he tells me. “I just say what I stand for and what I believe and what I’ve done, and then people can make their own judgments.”
Pawlenty hails from deep in the nation’s Nice Belt, so perhaps he’s sincere about that, though I suspect what he really means is: Oh no, you’re not going to lure me into that — not at this introductory stage in the game.
Still, the crowd has clearly come to see how Pawlenty, who finished third in a weekend straw poll behind Romney and Ron Paul, stacks up against a front-runner who leaves some underwhelmed.
In a possible GOP field that includes figures whose off-putting political pasts (Newt Gingrich) or too-light, too-right profiles (Sarah Palin) would render them general election Hindenburgs, and others whose regional or religious personae (Haley Barbour, Mike Huckabee) seem unlikely to translate in flinty New Hampshire, Pawlenty deserves notice.
So let’s look at the tale of the tape. Romney was a one-term Republican governor of deep- blue Massachusetts; Pawlenty did him one better, winning a second gubernatorial term in almost-as-azure Minnesota.
Pawlenty also registers better on the all-important Reaganometer. Romney was late in accepting Ronald Reagan as his political savior, declaring in 1994 that, heresy of heresies, he was “not trying to return to Reagan-Bush.” Pawlenty gravitated Gipperward as a college student. Indeed, mere proximity to the Great Communicator at an event rendered him giddy. “I didn’t have a chance to interact with him, but it was meaningful to me just to be in his presence,” he writes in “Courage to Stand,” his new campaign book. “I left the event in awe of him and inspired.”
A brief digression: Like many current Reagan devotees, Pawlenty seems more enamored of the GOP’s romanticized political portrait than the actual historical figure. Reminded that, faced with large deficits after his tax cuts, the Gipper bit the bullet and acceded to several substantial tax increases, Pawlenty makes it clear he won’t be that Reaganesque.
“I have been very strong in saying as governor and I believe overall that we shouldn’t raise taxes,” he said.
That highlights the ironic nature of the GOP’s Reagan idolatry: Given his presidential tax hikes and the record-setting revenue increase he signed as governor of California, the real Reagan probably wouldn’t be ideologically pure enough for the party that has remade itself in his idealized, air-brushed image.
But onward. Based on my conversations with New Hampshire Republicans, Pawlenty also has an advantage in what he hasn’t done. Specifically, he didn’t engineer a state health care law that was the model for Obamacare.
One caveat: GOP efforts to mischaracterize that national law will be difficult indeed with Romney immovable as the rock of Gibraltar in insisting that no statute built on private-insurance coverage and based on individual responsibility can be fairly described as either a government takeover or socialism. (Just kidding — kidding about skittery Mitt resembling the planet’s most redoubtable rock, that is.)
Although Pawlenty has a reputation as bland, his speech recounting his gubernatorial battles on behalf of smaller government, a public pension overhaul, tort reform and performance pay for teachers was anything but. His address was lively, forceful and occasionally funny — and he seemed more comfortable in his skin than Romney usually does.
To be sure, Romney commands some distinct advantages of his own. His vast wealth imparts a large funding advantage, and having already run once, he’s got a national network, widespread name recognition, valuable experience, and perhaps an it’s-his-turn edge with those Republicans who still believe in political primogeniture. And though Pawlenty talks about the need for government to listen to the job creators, Romney’s successful business career imparts better CEO karma and private-sector credibility.
Yet I left Pawlenty’s speech impressed with his talent — and so did the Republicans I talked to afterward. He’s a candidate who could leave Romney glancing nervously over his shoulder as he tries to preserve his New Hampshire advantage.
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