Ag services, animal nutrition help boost ADM second quarter

By Aerin Einstein-Curtis contact

- Last updated on GMT

© iStock/buhanovskiy
© iStock/buhanovskiy

Related tags: Soybean, Better, North america

Agricultural services and animal nutrition results helped produce an improved second quarter for ADM, however results were down for oilseeds, says CEO.

Archer Daniels Midland (ADM) Company reported earnings for the second quarter ending June 30 on Tuesday.

The company saw increased adjusted earnings per share and higher adjusted segment operating profit compared to Q2 2016, but overall revenues were $14.9bn, down from $15.6bn at this point last year.

Net profit attributable to the company fell to $276m, in the quarter, from $284m a year earlier.

Juan Luciano, CEO of ADM, on a conference call with analysts, noted: “Ag services was up for the quarter, with improved merchandising results globally. Our corn business delivered another strong quarter earnings growth – oilseeds results decreased on less favorable global soybean crush margins and South American origination.”

The improvements stemmed from company focus on its strategic plan and improving conditions for some markets, he said.

ADM is expecting to see earnings growth and year-over-year improved returns in 2017, with better results in 2018.

"We feel good about how we have transitioned during this quarter – it was a relatively tough quarter for crushing, we are moving into 2018 with better dynamics for that business," ​said the CEO.

Agricultural services 

Overall results for agricultural services improved from the prior year, said Luciano. The segment had its fourth consecutive period of year-on-year growth for operating profit.

Returns for merchandising and handling improved from the second quarter of last year, he said. “North America grain results increased significantly over the prior year with a strong carry in wheat, corn and soybeans,”​ he added.

Results for agricultural services were $109m for Q2, up from $57m last year, the company reported. Merchandising accounted for about $40m of the earnings, an improvement on the previous year.

Milling results were $58m, a slight increase from the $56m reported in 2016, ADM said. However, transportation had a segment operating profit of $11m, down from $15m last year.

The company is seeing benefits from work to boost the global traders’ performance, said Luciano. Good execution and improved margins helped offset reduced volumes.

Destination marketing is continuing and the company’s joint venture in Egypt, Medsofts, had a strong quarter, he said. The company also acquired a controlling interest in Industries Centers – an Israeli company focused on import and distribution of agricultural products.

“Ethanol margins improved significantly due to lower production costs and increased industry exports,” ​he said. “Animal nutrition was up over the second quarter of 2016, driven by improvements made in the specialty feed ingredients business.”

In corn processing, bio-products results rose to $26m and sweeteners accounted for about $198m, up from $182m last year, the company said.

Soybean processing  

However, soybean processing results were weak, said Luciano. Soybean processing earnings fell 12% as ample global supplies of high-protein feed grains that compete with soybean meal in feed rations put pressure on crush margins, along with slow first-half growth in meal demand.

“In South America, when the Brazilian real dropped in value for a brief time in May, we saw more aggressive farmer selling,​” said Luciano. “But in general, throughout the quarter, the real remaining firm contributed to compressed South American origination margins.”

Looking forward, the company is predicting that results will be weaker in the next quarter compared to a strong third quarter last year, he said.

But it will offer better results than the second quarter did, he said.

“South America's large crop will continue to pressure North American exports in the third quarter,”​ said Luciano. “Absent any major dislocation event, we continue to expect it will be a very competitive global environment in the third quarter. However, strong US corn and soybean production may present merchandising opportunities in the second half of the year, particularly in the fourth quarter.”

The expectation is that international merchandising will offer favorable results, he said. “So, overall, we continue to expect performance in ag services for calendar year 2017 to be better than 2016,”​ he added.

Results in other segments look more promising for the third quarter, he said.

Corn is predicted to see improvement from 2016 and so are results for oilseeds.

“We expect soybean crush margins to be improved in the second half of the year as meal demand growth rates are projected to increase,”​ he said. “However, they will continue to be margin pressure from competing proteins and strong Argentine exports.”

The full year expectation for oilseeds is an improvement on 2016, but not reaching results set in 2015, he said.

Oilseeds are expected to have better third and fourth quarters as there should be good availability of soybeans in North America and strong domestic demand, he said.

This year there also has been an effect from China no long accepting dried distillers grains (DGGS).

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