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Pandemic boosts to food stockpiling, pets help drive doubling in ADM profits

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Shares in Archer Daniels Midland touched a five-month high after the agricultural trading giant followed rival Bunge in unveiling forecast-beat results, led by its ag services and ingredients operations.

 

ADM shares traded 1.6% up to $43.59 in early deals in New York, their highest since February, before easing back to $43.04, a gain of 0.3%, amid weak Wall Street conditions, after the US reported its GDP shrinking by 9.5% quarter on quarter in the April-to-June period.

 

The headway followed the group’s announcement of a doubling to $469m in earnings for that quarter, on revenues flat at $16.3bn.

 

The earnings equated, on an adjusted basis, to $0.85 per share, ahead of market expectations of a $0.51-per-share result.

 

“This was another strong quarter for ADM, “the group’s chairman and chief executive, Juan Luciano, said.

 

Best performers

The profits gain reflected in part some of the tailwinds that Bunge highlighted on Wednesday, including an acceleration in crop sales by Brazilian farmers, taking advantage of prices boosted in local terms by the real’s weakness, and the boost to shipping by importer stockpiling amid the Covid-19 outbreak.

 

“Global trade delivered another strong quarter, as countries looked to secure stable supplies of food amid the pandemic,” said ADM, reporting a 90% surge to $171m in operating profits in its ag services business in the quarter.

 

However, the group also highlighted a 35% jump to $158m in operating profits at its nutrition division, which is has been building up as a higher margin add-on to its more volatile commodity operations.

 

Its animal nutrition arm saw profits growth helped by “robust demand for pet foods and treats”, as the pandemic spurs growth in pet ownership, while the flavours and ingredients business was helped by factors including “rising customer demand for plant-based proteins and edible beans”, amid the quest by many consumers to alternatives to meat.

 

Ethanol margins

ADM also reported a return to the black by its ethanol operations, now reported as Vantage Corn Processors, as the pandemic spurred demand for alcohol-based cleansers.

 

An $18m operating profit for the quarter at the unit, compared with a $23m loss a year before, was “driven by favourable risk management results on inventory positions and strong demand for industrial ethanol”, ADM said.

 

It also noted some improvement in the overall ethanol market, as production curtailments forced by negative margins - sunk by the hit to fuel demand from Covid-19 lockdowns – started to reverse a build-up in inventories of the biofuel.

 

“While average industry ethanol margins were down versus the prior year, prices and margins improved throughout the quarter as lower production, including two idled ADM dry mills, and some recovery in driving miles led to falling industry stock.”

 

US ethanol stocks, having set a record high of 27.69m barrels in mid-April, had retreated to 20.16m barrels by late June, the lowest since early 2017, official data show.

 

ADM reported industry ethanol production margins at a negative $0.15 a gallon for the quarter, an improvement on the negative $0.23 a gallon for the previous three months.

 

‘Covid-19 effects’

However, in starches and sweeteners, profits fell by 16.7% to $177m, as a hit from factors including “lower foodservice demand in North America” amid the pandemic offset a boost to wheat milling from “solid retail demand” as customers stocked up on staples.

 

Oilseed crushing profits fell by 18.7% to $113m, with North American margins “impacted by Covid-19 effects on customers”.

 

Nonetheless, Mr Luciano said that the group was “in a strong position, with great momentum, and we are confident in our ability to continue to deliver strong earnings and returns in 2020 and beyond”.

 

 

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