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Andersons shares follow ADM, Bunge in sharp fall

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Shares in The Andersons tumbled, extending the run of declines for stock in grain traders, as the rail-to-ethanol group reported a surprise loss, thanks in part to the grains glut which flagged by larger peers Archers Daniels Midland and Bunge.

Stock in the US-focused group tumbled by 11% in early deals to a 10-month low, before recovering some ground to stand at $33.45 in late-morning trading, a decline of 7.1% on the day.

The decline came on top of losses of nearly 4% previously this week, as the shares felt some of the pressure applied to larger, international peers Archer Daniels Midland and Bunge – whose stock has also tumbled, on disappointing results.

Shares in ADM, which touched a nine-month low on Wednesday, remain down 8.3% for the week, with those in Bunge trading 12.9% lower.

And, as with its rivals, the drop in Andersons's stock was in part down to the knock-on effects of huge grain supplies, after three successive strong global harvests.

'Growers sidelined'

Andersons – which reported a $0.11-a-share loss for the January-to-March period, compared with Wall Street expectations of earnings of $0.14 a share – said that its grains business reported a pre-tax loss of $5.1m, albeit an improvement on the $17.4m loss a year before.

While the strong volumes meant that income from storage services rose by more than $9m, with results also helped by the disposal of Iowa assets which lost $1.4m in the first quarter of 2016, "low" grain prices – a reflection of large supplies – "kept growers largely sidelined", the group said.

"Post-harvest farmer selling has been slow," said Pat Bowe, the Andersons chief executive, noting too "lower-than-expected basis appreciation in the quarter" – ie a weaker-than-forecast performance of cash markets compared with futures.

'Oversupply environment'

The comments follow those from Archer Daniels Midland on Tuesday that "with ample stocks around the world, there is a very subdued environment for us to make profitable international trades".

Bunge, citing an "oversupply environment", said that "we have to prepare ourselves to operate in an environment with compressed margins and we have to be more efficient and focus on cost".

However, Andersons does not operate in South America, where ADM and Bunge exposed dents to profits from slow farmer selling which, in supporting raw material costs, hit soybean crush margins.

DDGs vs corn

Andersons also noted continued setbacks at its ethanol business from the extent of vomitoxin, a toxic fungal residue, in corn brought in as a raw material – a factor contaminating the distillers' grains also produced at its biofuel plants, and so forcing the group to accept discounts on sales.

This when distillers' grains, or DDGs, are already trading "lower relative to corn", after China slapped huge tariffs on imports of the feed ingredient from the US amid claims of dumping.

As of last week, DDGs were selling at US Gulf ports at a $12.44-a-tonne discount to corn, compared with a $3.60-a-stonne premium a year before, according to the US Grains Council.

'Margins compressed'

Meanwhile, underlying profits growth in the Andersons' fertilizer division was kept below 20% by a 9% drop in sales volume of NPK, the compound nitrogen, phosphate and potash product.

And while volumes of specialist products rose by 9%, "margins continued to be compressed by oversupply", Mr Bowe said.

The group also cautioned that the wet conditions in the Midwest which are hampering sowings progress "could prove detrimental by shortening the growers' fertilizer application window, pressuring margins as dealers and wholesalers with long positions try to sell out of them.

Furthermore, "As the season progresses, farmers may shift their planting intentions from corn to soybeans", which have a slightly later seedings window – but lower nutrient needs.

By Mike Verdin

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