Archer Daniels Midland Co.'s fiscal second-quarter earnings rose 29% as it took advantage of surging export demand for grains and favourable ethanol margins, pushing the company's stock to a high not seen in more than 2½ years Tuesday.
The grain processor and merchandiser, which was caught off-guard in the summer by the timing of a Russian grain export ban, began benefiting from tightening global supplies toward the end of 2010. Its results for the quarter beat analysts' expectations, with shares up 6.4% to $34.75 in recent trading.
Earnings were driven by ADM's agricultural services division, which handles and transports grain from farm to market, relying on a network of elevators, barges and ports. Profits in the segment nearly tripled as the Decatur-Ill.- based company reported record exports.
World grain supplies have grown precariously tight, which largely benefits global grain merchandisers such as ADM, as customers are forced to find supplies in new and distant locations.
Yet the company wasn't able to capitalize initially, seeing profits fall as a drought in Russia last summer whipsawed global crop markets.
Favourable corn positions
ADM's increased earnings in the most recent quarter were also fuelled by "favourable corn ownership positions."
Prices for corn and other agricultural commodities have soared in recent months to their highest level since a record- breaking rally in 2008.
That helped boost margins at ADM's ethanol production facilities, as did strong sugar prices, which made US corn-based ethanol more competitive in the export market against ethanol made from sugar cane.
Earnings in the company's bioproducts division, which includes ethanol, were up 74% for the quarter.
Oilseeds earnings down
At ADM's oilseeds processing unit, its biggest segment by volume that includes its biodiesel business, earnings fell 7.7% on weaker results at its Asia business. The company also reported earnings fell for its corn sweetener operations
A well-publicized backlash among some consumers against high fructose corn syrup in the United States has not damped demand in Mexico. Corn sweetener shipments to Mexico were up 90% in 2010 to 1.5 million metric tons and will remain strong.
For the quarter that ended Dec. 31, ADM reported a profit of $732 million, up from $567 million a year earlier. Revenue climbed 32% to $ 20.93 billion.
ADM's strong earnings and debt buybacks coupled with strengthening global demand for agriculture commodities have given it flexibility to renew its emphasis on acquisitions.
Although the rising commodity costs typically means the company will have to take on more debt to ensure adequate working capital, Chief Executive Patricia Woertz said, that won't "hamper our ability to do our M&A."
Source: Dow Jones