Tate & Lyle surfed the agricultural zeitgeist, and factors from high sugar prices to the Texas drought, to achieve profits well ahead of market forecasts, helping its shares hit their highest for nearly five years.

The starches and sweeteners group reported an underlying pre-tax profit of £180m ($287m) for the April-to-September half, a rise of 38%, and above analysts' forecasts of a £164m result.

The improvement reflected "solid demand in a number of our markets", chief executive Javed Ahmed said, a factor which lifted sales by 14.2% to £1.54bn, and reflected many of the key agriculture issues.

Historically high sugar prices sparked "an increase in the demand for speciality corn sweeteners", while a hangover from a disappointing European potato harvest last year prompted starch users to turn to Tate's corn-based products instead.

"Furthermore, European customers are starting to switch into corn-based starches in anticipation of the potato regime change in 2012," in which the European Union is ditching production-centred subsidies for starch potatoes.

The shake-up is expected to reduce significantly the competitiveness of starch-based potatoes, with specialist producer Avebe believing it could increase the cost price of potato starch by some E80 a tonne.

Drought and red tape

However, Tate focused in particular on its continuing boost from the strong market for byproducts of corn ethanol manufacture, which had, in generating an extra £19m in profits, proved even stronger in the half than the group guided too last month.

These byproducts include corn gluten meal, primarily used in pet food, corn gluten feed, and corn oil, which can be used in cooking and biodiesel, as an alternative to the likes of soyoil, besides in animal feed.

Rising demand by US livestock farmers to feed alternatives to high-priced corn was whetted further by the Texan drought, besides a European Union decision to relax zero-tolerance restrictions on traces genetically modified crop in imports of products such as feed proteins.

This EU concession has sparked a marked rise in imports of US ethanol plant byproducts, notably to Spain and the UK, with the region's buy-ins of distillers grains more than doubling to 410,000 tonnes in the first eight months of the year.

"As a result of high corn prices and high levels of demand, co-product prices remained very firm throughout the period," Tate said.

Hedge evolution

The clamour for supplies had even led to changes in customer buying behaviour, "with what is traditionally a short-term market seeing customers wanting to secure volumes several months in advance".

This had allowed the group to fix longer-term sales "at favourable pricing", such that, for some byproducts, it has already sold under contract "a significant proportion" of volumes expected for the full year.

This move towards advance deals helped the group tackle what has been one of its biggest bugbears – its inability to hedge forward the likes of corn gluten as it can prices of the grain itself.

Helped by forward byproduct sales, the group said it enjoyed an "exceptionally strong performance in September", when crop prices tumbled, putting many agribusiness groups on the back foot.

"Despite the big fall of 17% in the US corn price from the last week in August to the last week in September, we were able to price some good feed volumes at high prices," Tate said.

Tate vs Cargill 

The group's success in riding out volatile markets puts it, with rival Corn Products International, among companies which have navigated successfully through the volatile markets, with Bunge and Cargill reporting greater difficulties.

Tate's results were well received by investors, who sent the group's shares to 692.5p at one point, the highest since January 2007.

The shares closed up 5.2% at 680.5p.