The squeeze on world grain and oilseed supplies will last “for the next few years”, Archer Daniels Midland said, as it credited the “tighter supply environment” with fuelling bigger-than-expected profits growth.
“Looking forward, we expect reduced crop supplies… to drive continued tightness in global grain markets for the next few years,” said Juan Luciano, the ADM chairman and chief executive.
He cited as behind the squeeze Canada’s “weak” canola harvest, thanks to drought last year, and dryness which had meant “short South American crops” too.
There was also “now the disruptions in the Black Sea region”, thanks to the invasion by Russia, the top wheat exporter, of Ukraine, the biggest supplier of sunflower oil to the world market, besides being a substantial corn and wheat shipper.
Earnings rise
Mr Luciano made the comments – which come as investors are attempting to gauge long- and short-term prospects for grain supplies thanks to the weather and Ukraine upsets – as ADM unveiled earnings up 53% at $1.05bn for the January-to-March quarter.
Revenues expanded by 25% to 23.65bn.
The earnings on an adjusted per-share basis came in at $1.90, well above the $1.41-per-share result that investors had expected, according to a Refinitiv poll.
ADM shares rose by 5.5% to $95.97 in early deals in New York, before easing back to $93.835 in lunchtime deals.
Crush margins expand
The earnings improvement reflected factors including “effective risk management” and the “tighter supply environment, especially with the smaller South American crop”, Mr Luciano said, noting that demand had stayed “robust and resilient”, even in a period marked by higher prices.
In the core ag services division, operating profits rose by 20% to $1.01bn, reflecting a doubling to $198m in the result in refined products unit, which was lifted by “good” demand for refined vegetable oils in North America, and “strong” biodiesel margins in Europe.
ADM reported a current European rapeseed crush margin of about $100 per tonne – up from $20-30 per tonne three months ago.
It also reported expansion in the US soybean crush margin to $75-85 three months ago, from $55-65 per tonne three months ago, and in South American margins too, with the Argentine one up to $25-30 per tonne from about $5 a tonne in late January.
However, the Chinese soybean crush had contracted to $5-10 per tonne, from $20-25 per tonne three months ago.
Acid test
Growth of 22% to $317m in operating profits in the carbohydrate solutions division was driven by a 42% surge in starches and sweeteners, “driven by higher… revenues” from byproducts of corn processing, which includes the likes of distillers’ grains and corn oil, “and improved citric acid profits in North America”.
Operating profits in the nutrition division rose by 23% to $189m, helped by strong prices of amino acids, such as lysine, used as feed additives, as well as by the acquisition of Sojaprotein, the Serbian-based supplier of soybean ingredients drawn from non-genetically-modified crop.
