Grain merchant Archer Daniels Midland has weathered the start of agricultural trade wars in fine shape, reporting strong results despite an uncertain market for food commodities.
The Chicago-based company operates one of the largest crop trading businesses, purchasing harvests from farmers for processing or sale at destinations around the world. Traditional supply routes twisted ahead of China’s move this month to impose steep tariffs on US soyabeans, a core product for ADM.
Yet in the second quarter ended June 30 ADM said operating profit in its origination division, which houses most grain and oilseeds trading, had more than trebled from the same period a year before to $189m.
Juan Luciano, chief executive, called the US-China dispute “manageable”, adding that company’s outlook for 2018 was in fact “more favourable” than it was at the end of the first quarter.
The boost in origination underpinned company-wide net profit of $566m, or $1 per share. Adjusted for one-off items, earnings were $1.02 per share, up 79 per cent from the same period a year before and well above consensus expectations of 78 cents per share, according to S&P Capital IQ.
ADM belongs to industry associations that have vociferously opposed new US tariffs on goods from China, Mexico, Canada and the EU. America’s trading partners have responded by targeting US agriculture, prompting dire warnings from the US farm lobby.
The short-term impacts of the nascent trade war have created opportunities, however.
“The dislocations and grain price fluctuations caused by the trade disruptions have been very positive for ADM, which has benefited from record exports out of the US ahead of trade sanctions,” said Farha Aslam, analyst at Stephens.
The company has the most exposure to the US among global agricultural trading houses. Exports of leftover US soyabean stocks quickened before China’s soyabean tariffs took effect on July 6. Government data showed exports surged to 3m tonnes in May, the most ever for that month.
Grain and oilseed deals were also helped by volatility in South America after a drought reduced Argentina’s soyabean crop and labour strikes by truck drivers interrupted movements of grain from Brazil.
Ray Young, ADM’s chief financial officer, said: “The short crops in South America, as well as increased purchases from that region by China in anticipation of tariffs, offered motivation for other buyers to come to the US. The result was significantly higher volumes and margins for corn, wheat and soyabean exports.”
Argentina’s smaller harvest pushed up profit margins for processing soyabeans into protein meal and vegetable oil. That business is another speciality of ADM, which owns 123 oilseed crushing and origination plants, mostly in the US and Europe, with a daily capacity of 157,000 tonnes.
The company said its oilseed crushing and origination businesses achieved a second-quarter record in crushing volumes. Operating profit from ADM’s oilseeds division jumped 70 per cent year on year to $341m.
ADM’s business refining corn into fuel ethanol was harmed after exports to China dried up because of another set of tariffs raised in response to new US steel and aluminium duties. Mr Luciano warned of weaker results for the carbohydrate solutions division that includes ethanol, as operating profit from such bioproducts fell by more than half to $11m.
Shares in ADM rose 2.2 per cent to $48.39 early in New York.
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