ADM ‘optimistic’ despite dent from high crop bills
Comments Off 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.
‘Modestly improving’
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.
Weak Europe
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.
Revenues soar
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.
