ADM’s Argentine-born boss highlighted the potential for the country’s election result to boost oilseed crushers elsewhere, as he foresaw a recovery in US corn exports, and in soy crush profits from a “short-term bleed”.
Juan Luciano, the ADM chairman and chief executive, underlined that Argentina’s crop exports could be in the firing line as Albert Fernandez - who becomes president in December after winning elections last week - tackles a “significant” debt burden.
“Obviously, the ag industry is one of the biggest revenue producers of Argentina. So the possibility is there,” for increases levies on shipments, said Mr Luciano, who was brought up on a farm near Buenos Aires.
The previous Peronist government imposed hefty levies on Argentine crop exports, although it is not yet known what Mr Fernandez’s strategy will be until he takes office next month.
‘Helpful for profitability in Europe’
Already, the impact of the - much anticipated - election result was being felt in terms of reduced farmer crop sales, a dynamic flagged earlier in the week by ADM rival Bunge, which has a significantly greater exposure to the South American country.
“What’s happening in Argentina is crush is down because basically, the farmer, given the results of the elections, are holding [on] to their grain.
“In that sense, we see lower crush” in Argentine, the top exporter of soymeal and soyoil, implying some benefit to rival origins.
Mr Luciano singled output Europe, where ADM has a substantial presence, saying that it was “always helpful for profitability in Europe… when crush from Argentina is low”.
He was also sanguine on a boost to soybean crush margins from growth of 3% in in soymeal demand - excluding China, where African swine fever has, in shrinking the pig herd, lowered feed needs, although creating opportunities for meat exporters elsewhere to fill the void.
Although margins had fallen - through factors including boosts to prices from announcements of Chinese import purchases from the US – “we think all these bleeds are temporary at best,” Mr Luciano told investors.
“In the US, we continue to see our [meat producing] customers announcing production increases going forward.
“And if you think about what happened over the last two weeks, we’ve seen a recovery in crush margins of about $0.15 per bushel.”
“So we feel good about our fourth quarter. We are fundamentally believers in the crush environment for 2020 given 3% [soymeal demand] growth outside China.”
Corn export outlook
In the corn industry too, he was optimistic on the prospect for some improvement in US exports, after a poor start to 2019-20.
Although US corn was currently “not that competitive relative to, say, South America”, that situation would be rectified, potentially early in 2020, as farmer selling
“Right now, US corn is not that competitive relative to, say, South America,” being supported by a dearth of farmer sales also evident in basis levels Mr Luciano termed “extremely highb… compared to historical norms.
However, potentially early next year, “US farmers will be looking probably to sell more of the corn because they start thinking about freeing up space” for 2020 harvests.
Although US exports “will be a little bit challenged” for the rest of this year, “getting in the first quarter [of 2020], we do believe US corn will become more competitive, so there’ll probably be more movements of US corn”.
‘Margins do improve’
This would prove a boost to a US ethanol industry which has suffered an “extremely challenging… margin environment” this year.
“It’s actually very difficult to see a scenario by the industry ethanol margins in 2020 being worse than 2019 because it’s been tough in 2019,” with profits hurt by the dent to demand from a spate of refinery blending exemptions, besides the elevated corn prices.
However, Mr Luciano said that the idling of ethanol plants appeared evidence of “a little bit more discipline within the industry right now terms of just trying to better match supply and demand.
”When you get supply and demand a little bit more balanced, the margins do improve in our industry here,” a dynamic that ADM was monitoring “very, very carefully”.