Weak grain margins lead to drop in Q2 earnings for ADM

By Aerin Einstein-Curtis contact

- Last updated on GMT

© iStock/Stephen Rees
© iStock/Stephen Rees

Related tags: Soybean

A challenging start to the year and low grain prices led to a decline in second quarter profit for ADM.

The agribusiness giant posted Q2 2016 financial earnings results for the period ending June 30 on Tuesday.

More positive results are predicted for the second half of the year, said Juan Luciano, chairman and CEO of Archer Daniels Midland Company (ADM).

“General market conditions began to turn at the end of the second quarter, providing us with improved opportunities for the second half of the year,”​ he said.

Overall, the company had an adjusted operating profit of $573m, somewhat of a dip from $724m reported for the same quarter in 2015.

ADM also reported earnings before income taxes (EBIT) of $407m, down from $526m for the previous year.  

Ray Young ADM CFO, speaking during a call on the earnings results, said the company is expecting to see an equity loss of about $50m from its 22% ownership stake with Wilmar in the third quarter.

Soybean crush 

During the quarter, the company did see record volume of soybean crush and global protein demand continued to grow, said Luciano on the call. Capacity has been expanded at a facility in Straubing, Germany, which should help meet the interest in non-biotech soybean meal, he said.

Overall profit for the agricultural services segment was $97m, a drop from the $152m brought in for the same quarter in 2015, he said.

“We indicated last quarter that ag services in the second quarter would be challenged, and as it turned out adjusted results were down significantly compared to one year ago due to compressed US grain handling margins,”​ he said. “In the US, we saw limited merchandizing, warehousing and storage opportunities due to reduced grain carries.”

Low prices and compressed margins in the US grain handling network led to a decline in merchandising and handling earnings, the company reported. International merchandising results improved based on better origination in Argentina and additional marketing in Egypt.

Results for transportation declined by about $4m as there were lower fright rates and less demand for barges, said Luciano. Milling operations had a strong second quarter based on product margins and merchandizing results.  

Lysine sales faced pressure from global production, but improved when global inventories shrank and demand continued, he said.

The oilseeds processing segment also saw a drop in profit falling from the $344m generated in 2015 to $234m, but the Asian market had an improvement of $8m from past year performance, the company reported.

“Oilseed results were solid for the second quarter, but were down versus the strong quarter one year ago,” ​said Luciano. “Crushing and origination declined from last year’s high levels primarily due to weak canola margins as well as lower soy crush margins, which were historically high last year.”

But strong global demand for protein meal and weak economics for soft seeds allowed ADM to flex some capacity and set new second quarter soy crush volume records for the company’s North American and European crush operations, he said.

“Earlier in the quarter we had expected significant soybean crush negative mark to market impacts for the second quarter due to significant increase in broad margins,” ​he said. “But the actual net impact turned out to be quite minimal as broad crush margins fell in June.”

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