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ADM shares tumble as ethanol, dollar hurt profits

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Shares in Archer Daniels Midland plunged nearly 10% after the agricultural trading giant unveiled a bigger-than-expected drop in earnings, hurt by "very weak" ethanol margins and the US's dollar-dented crop export performance.

ADM shares slumped to $41.74 in early deals in New York, wiping $2.8bn from the company's stockmarket value, before they recovered some ground to stand at $42.265, a drop of 8.7%.

The decline followed the group's release of earnings for the July-to-September quarter which, at $252m, were down 64% year on year.

Underlying earnings per share came in at $0.60, below the $0.70 per share that Wall Street had pencilled in.

'Considerably lower margins'

The extent of the fall in earnings, on revenues down 8.6% at $16.57bn, reflected largely a 78% slump to $40m in operating profits from corn processing.

"While demand for ethanol domestically and from overseas markets remained solid, industrial production levels were also strong, resulting in high industry inventory levels which kept industry margins considerably lower than last year," ADM said.

And conditions remain tough, with Juan Luciano, the ADM chief executive, adding that "we continue to confront very weak industry ethanol margins."

Cash margin for US ethanol producers stood at just $0.03 per gallon as of last week, compared with levels above $0.40 per gallon in the late spring.

Dollar hit

However, ADM, one of the big four ag trading companies with Bunge, Cargill and Louis Dreyfus, also flagged a bigger-than-expected dent to its flavourings and specialty ingredients division from the "headwinds" of weaker emerging markets and a strong US dollar.

And the firm dollar depressed profits in crop exports too, despite "solid" demand.

"Ample global supplies of grain, a weak Brazilian real that motivated Brazilian farmer selling, and a strong US dollar reduced the competitiveness of our North American exports—particularly corn and wheat—limiting both volumes and margins," ADM said.

The data come the day after official data showed US corn exports so far in 2015-16, which started in September, at 206m bushels, down 24% year on year.

For wheat, for which the marketing year started in June, shipments are running 18% behind the year-ago pace.

Real factor

The weakness in the Brazilian currency provided some support to South American trading margins, in protecting farmers from the weakness of international crop prices, denominated in dollars, and encouraging selling.

Origination and export margins and volumes in the region, for corn and soybeans, "were boosted by the significant weakening of the real", ADM said.

However, the group is not as well positioned to exploit the trend as some rivals, such as Bunge, with a relatively larger South American presence.

ADM echoed Bunge's comments last week of declining profitability in crushing of non-soy oilseeds, such as rapeseed, saying that "weak demand for vegetable oil reduced margins and volumes of softseeds operations, particularly in Europe".


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