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Strong soy crush profits save ADM from ethanol hit

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A brace of boosts from oilseeds lifted Archer Daniels Midland earnings despite a third successive quarter of losses at its ethanol division, which was sapped by "weak" US demand and "unfavourable" trade flows.

The agribusiness giant, one of the world's top crop traders, unveiled a sixfold jump to $510m in earnings for the October-to-December period.

While the earnings improvement, on revenues up 6.9% at $24.9bn, was flattered by a series of one-off charges depressing year-before results, even excluding one-time items earnings per share rose to $0.60, from $0.51 a year before, and ahead of Wall Street expectations of a $0.57-a-share result.

"The ADM team managed well despite the challenges from the US drought and from persistent, negative margins in the ethanol industry," Patricia Woertz, the ADM chairman and chief executive, said.

Corn vs soybeans

The group's ethanol division ratcheted up an operating loss of $94m, thanks to high corn prices at a time of subdued US demand and a slide in foreign orders, following the recovery last year in Brazil's cane crop, the raw material for the South American country's production of the biofuel.

"Weak domestic gasoline demand and unfavourable global ethanol trade flows resulted in continued excess industry capacity, keeping ethanol margins negative," ADM said.

The US last month recorded its lowest weekly ethanol production figure since records began in 2010.

However, the group's US soybean operations milked the strong processing margins – of roughly $2.0 per bushel on Morgan Stanley estimates - which drove the American crush to one of its strongest quarters on record in the October-to-December period.

The December crush, at 159.9m bushels according to industry data, was the second largest on record for the month.

ADM said its US soybean operations "ran at record capacity during the quarter and delivered very strong results amid good domestic and export meal demand".

'Solid' soy exports

Group oilseed processing volumes in the quarter rose more than 200,000 tonnes, to 8.4m tonnes.

And "solid" US soybean exports allowed the group to unveil a 22% rise to $129m in operating profits from its merchandising and handling operation, despite a dent to the division from America's drought-depleted corn harvest last year and a subsequent drop in export volumes.

The comments come the day after official data showed US soybean exports topping 1.0m bushels for in first five months of 2012-13 – leaving them less than 350m bushels short of the total the US Department of Agriculture has forecast for the whole season.

While lower Mississippi river levels presented "challenges" to transporting crops from the US interior to Gulf of Mexico ports, "increased barge operating expenses were partially offset by higher freight rates", limiting to $5m a decline in operating profits from transportation.

Brazil boost

Ms Woertz said: "In North America, we fully utilized our oilseeds crushing capacity to meet strong global demand, and we adjusted our transportation and origination network to move goods efficiently despite constrained river traffic and a smaller corn crop."

Meanwhile, in South America, the group had "leveraged our origination, transportation and export facilities to move the record corn crop to world markets".

Brazil's corn exports topped 10.0m tonnes during the quarter – less than 1m tonnes short of shipments for the whole of 2007 which had, until 2012, been the record year.

ADM shares closed 3.3% higher at $29.38 in New York.

By Agrimoney.com

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