ADM Hit By Drought and Volatile Ethanol Prices

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ADM Hit By Drought and Volatile Ethanol Prices

Archer Daniels Midland Company (NYSE:ADM), the food-processing and commodities corporation, reported earnings for the final quarter of fiscal 2012. Tight corn supplies and low profit margins on ethanol have reduced net income by 25% in this quarter. The profits amounted to $284 million or 23 cents per share which is a major decline from $381 million or 58 cents a share, reported for Q4 2011. The earnings forecast (Thomson Reuters) estimated a 60 cents EPS on a revenue of $21.75 billion.

Revenue fell by 0.9% to $22.68 billion from $22.9 billion, over the same period a year ago.

Income from the corn processing unit fell 39 percent to $74 million, while earnings from merchandising reduced to $30 million from $152 million.

CEO of ADM, Patricia Woertz, made positive remarks in the conference call to discuss earnings, she said,”While U.S. crop [supplies] are expected to be low, we have an exceptional and experienced business team to manage through this environment.”

Archer Daniels Midland Company (NYSE:ADM) shares dropped more than 4% in trading today. This is in addition to the more than 20% fall in shares, seen in the past three months.  The largest grain trader and processor warned investors that its business has incurred losses, due to volatility of the ethanol market and underperformance of  its grain-processing units. The US crops have been severely hit by a prolonged spell of drought, termed as the worst drought since 1956. Corn prices have touched the highest records as a result of the heat wave that damaged crops in Illinois, Indiana, and other states.

Archer Daniels Midland Company (NYSE:ADM) has downsized its workforce for the first time ever this year, and has plans to increase grain processing in Northern Brazil, to offset the effects of short supplies in US market. Another grain processing corporation Bunge Limited (NYSE:BG) reported a 13% loss in profits in its quarterly earnings, last week. Bunge has greater standing in South American agribusiness as compared to AMD and therefore its profit margins were less affected. Bunge’s net profit was $274 million, or $1.78 a share, compared to $316 million or $2.02 a share, reported in Q2 2011. Revenue increased by 4.1% to $15.09 billion.

Archer Daniels Midland Company (NYSE:ADM), Bunge Limited (NYSE:BG), Cargill, and Louis Dreyfus are acronymed as ABCD. The ABCD companies are the largest grain processors and traders of the world.

For more information on how US midwest drought ties to rise in Brazilian agribusiness, read American Drought Boosts Brazilian Agriculture Exports.

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About the Author

Tabinda Hussain
Tabi covers hedge funds for ValueWalk. Although Tabi is an expert in hedge funds, her academic background is in Biology. Follow her on twitter @tabihussain

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