Feed grain exports drive ADM Q3 results

By Aerin Einstein-Curtis

- Last updated on GMT

© iStock
© iStock

Related tags Soybean International trade

ADM reported, though, that its crushing and origination results for Q3 declined significantly compared to a very strong year-ago quarter due to lower soy crush margins.

Overall, ADM’s unaudited revenues were $15.8bn, down from $16.5bn for the same quarter last year, the company reported. But the cost of products sold also dropped, and gross profit was $1.1bn this year compared to $1.08bn in 2015.

Operating profit for the company’s segments was $650m, excluding specific items, said Juan Luciano, ADM chairman and CEO. However, this is still below the $684m for the same period of time in 2015.

“As we explained last quarter, some of the challenging conditions we saw in the first half of the year began to subside late in the second quarter,” ​he said. “This led to a more favorable environment in the third quarter.”

Net earnings attributable to ADM were $341m for the quarter, up from $252m last year. Net earnings for the nine months ending on September 30 2016 were $855m for this year and $1.09bn for the same period in 2015.

istock M soybean crush
© iStock

“With improving market conditions and a large US harvest, combined with the team’s solid execution capabilities, we feel good about the remainder of the year and a stronger 2017,” ​said Luciano.

Reduced soy crushing margins

Results for the Ag Services division were driven by US exports that surged through the quarter, creating "improved merchandising opportunities"​ as the global market relied heavily on US exports of corn and soybeans, said the ADM CEO.

However, results for oilseeds were influenced by reduced global soy crushing margins, and “unusual”​ equity loss from the company’s Wilmar investment.

The operating profit for agricultural services saw a growth from the year before bringing in $193m compared to $149m, said ADM.

“In Ag Services, we saw improving market conditions, particularly increased competitiveness of US corn and soybeans, especially late in the quarter as we were able to export record volumes,”​ said Luciano. But global trade desk results fell for the quarter as some commodity prices dropped and global buyers drew down their inventories and reduced opportunities for merchandising, he added.

“Ag Services results benefited from record export volumes as crop shortages in South America accelerated this year's seasonal shift in global demand to North America,” ​he said. “In addition, as the record North American harvest started in the quarter, we saw improved merchandising, warehousing, and storage opportunities, as well as improved margins.”

Corn processing returned $212m this year instead of the $131m seen in 2015 with improved results credited to demand, reported ADM. Animal nutrition had improvements in both operation performance and margins.

However, oilseeds processing did not continue the trend, the company said. The segment brought in $144m compared to $335m for the same quarter last year.

“Oilseeds results were impacted by significantly lower global soy crush margins, weaker origination results in Brazil and the unusual equity loss from our Wilmar investment,”​ said Luciano. 

The loss for the segment continues to stem from Wilmar’s Q2 equity loss as those results are recorded with a one-quarter lag, he said. There was a $48m equity loss for the quarter.

“Crushing and origination results declined significantly versus a strong year-ago quarter due to lower soybean crushing margins as competing proteins such as DDGS and feed wheat displaced soy meal in some feed rations,”​ he said. “We also saw some period of increased competitiveness of Argentine meal.”

Additionally, the smaller crop in Brazil created a high cost structure during the quarter, he said. And, commercialization of next year’s soybeans and corn crops fell in reaction to lower commodity prices and the strong Brazilian real.

Record yields

The company is seeing improvements to the operating environment that appear to setup both a stronger end to the year and start to 2017, said Luciano. “For Ag Services, the North American harvest is progressing well and we're seeing record yields and production for both corn and soybeans,”​ he added.

The harvest is predicted to provide “solid”​ results for exports along with global merchandising and handling, he said. “Export origination margins while good and improved versus last year, are not at the same levels we realized in 2014,” ​he added.

US soybean production, along with domestic demand is expected to lead to seasonally high crushing volumes in the near future, he said. But crush markets may see resistance from other global protein production and South American origination will remain crop dependent.

“The fundamentals of increased global protein consumption point to a long-term sustainable trend which supports higher soy meal demand and higher industry capacity utilization into the future,”​ he said. 

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