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ADM underlines cocoa, ethanol, wheat opportunities

Archer Daniels Midland sounded an upbeat note on the US ethanol market, and on Europe's poor wheat quality boosting prospects for its "Toepfer team", as the agribusiness giant followed up strong results by heralding the sale of its chocolate business.

The agribusiness giant, in its investor call after unveiling quarterly profits which beat Wall Street forecasts, created headlines by revealing the imminent sale of its chocolate arm, which the group in April was announced was being split from the cocoa division for disposal.

"We expect to have signed agreement by the end of the third quarter to sell our global chocolate business," Juan Luciano, the ADM president, said in a one-line statement.

A sale would end a long-standing effort by ADM, one of the world's top cocoa dealers, to reduce its exposure to the industry, with the group originally planning a disposal of the combined cocoa and chocolate operations, but reportedly failing to reach agreement with potential purchaser Cargill.

Wheat quality 'opportunities'

However, ADM also highlighted the opportunities to its grain traders presented by the concerns over damage to wheat quality from late rains which beset the early harvest in the US and, in particular, the ongoing European Union harvest.

"You have the issues of quality in wheat that will present opportunities for our people to blend and to take advantage of opportunities," Mr Luciano said.

In Europe, where ADM in June completed the E83m ($114m) purchase of the outstanding 20% stake in German-based grain trader Toepfer International, traders "feel very good about the opportunity in the Black Sea, and to fully use out assets.

"The Toepfer team is very excited about it."

While overall wheat supplies were "adequate… sometimes there are lower proteins here and sometimes there are smaller crops where the quality is very good, and our team is very good at equalising all these around the world".

ADM in February revealed it launched a "significant review" at Toepfer, after a series of setbacks, ranging from "some geographic arbitrage that didn't go our way" to "some execution issues", including Argentine wheat export cancellations and the rejection by Chinese inspectors of corn import cargos.

Hedging strategy

Mr Luciano also highlighted the potential for ethanol, in which ADM "saw great margins and volumes" in the April-to-June quarter, and was placed for "sustained margins for the rest of the year".

"We are very optimistic about the second half," he said, in the latest of a series of upbeat comments within a sector being boosted by resilient ethanol values and low prices of corn, the main raw material for US makers of the biofuel.

The group has already hedged about 50% of its ethanol exposure for the current quarter, and would have hedged more than the "very little" it has fixed for the October-to-December period were it not for "liquidity issues", he said.

Normally, at this time of year, ADM has hedged some 20% forward for the fourth quarter.

'Very good level of exports'

US ethanol production is poised to hit "around" 14.3bn gallons this year, above the 13.5bn gallons or so expected to be used domestically, with the balance set for export opportunities being helped by relatively low competition from Brazil.

"We continue to see a very good level of exports, actually," Mr Luciano said, estimating them running at a pace of 850m-1bn gallons.

"This is a time of the year, that you should see Brazil being much more aggressive here. And actually we continue to see us… even exporting a little bit to Brazil."

Separately on Tuesday, Macquarie highlighted stronger-than-expected growth in Brazilian ethanol consumption so far in 2014-15, rising by 8.3% in the first two months of the season, which started in April.

Meanwhile, "Brazilian ethanol exports are proving to be very weak this season," the bank said, adding that "there is no reason to think that Brazil will regain any ground in the world's ethanol export market" against a US "dominating" trade.

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