Archer Daniels Sees Bumper Crops -- WSJ

By Jacob Bunge

Commodities giant Archer Daniels Midland Co. projected a bumper North American corn and soybean crop and said a more-stable U.S. dollar would help revive grain-trading profit after second-quarter profit fell.

The Chicago-based company is positioning to export an anticipated wave of U.S. crops, which executives said could outpace government projections, after damage to South American harvests stemmed that region's flow of grains in recent months.

Juan Luciano, ADM's chief executive, told investors market conditions were beginning "to turn" after a challenging year so far.

ADM and its chief rivals in global grain markets, including Cargill Inc., Bunge Ltd. and Louis Dreyfus Co., have been navigating renewed volatility in trading and processing crops such as corn, soybeans and wheat. The swings, driven by currency shifts and bouts of uncooperative weather in South America, have created opportunities for profitable trading but have also crimped some South American grain exports and dented processing margins.

For the second quarter, ADM reported a 26% decline in net income, undershooting analysts' expectations. Shares fell 2.8% to $43.02, but remain 17% higher this year.

Challenges in ADM's grain-trading and ethanol operations pressured its earnings, and while ADM executives projected conditions improving, they said the company aims to press ahead in reducing costs and emphasizing higher-profit businesses. ADM is in talks with suitors for a potential deal involving some of its U.S. ethanol facilities, Mr. Luciano said, as the company seeks to improve its biofuels returns.

ADM, the largest U.S. ethanol producer in terms of capacity, has made presentations to seven potential partners for a deal that could involve a sale of the company's three ethanol-producing dry mills, executives said, and bids are anticipated by the end of August. ADM could sell the mills, set up a joint venture or pursue some other structure, ADM Chief Financial Ray Young said, though if ADM were offered a good price it is "highly unlikely" ADM would keep them.

The company scaled back its ethanol production in the second quarter in response to weak profit margins and high inventories of the corn-based fuel additive, though ethanol stockpiles declined toward the end of the quarter, Mr. Luciano said.

In ADM's agricultural services division, which trades grain with food companies and governments around the world, the U.S. dollar's stabilization against the currencies of rival breadbasket companies puts ADM in a stronger position to sell U.S. crops on global markets over the second half of 2016, Mr. Young said. The unit is ADM's biggest source of revenue.

Weather problems, particularly in Argentina, slowed a wave of crop exports from South America and global demand remains "very, very strong, " Mr. Young said. Those factors put ADM on better footing for the remainder of the year, with U.S. corn, soybeans and wheat harvests potentially outpacing what U.S. Department of Agriculture forecasters already have predicted will be a record U.S. corn crop and the third-largest soybean harvest in history.

For the second quarter, ADM earned $284 million, or 48 cents a share, down from $386 million, or 62 cents a share, a year prior. Excluding gains on sales and other special items, per-share earnings fell to 41 cents a share from 60 cents a year before.

Revenue slid 9% to $15.63 billion. Analysts projected per-share earnings of 45 cents on revenue of $16.97 billion.

--Joshua Jamerson contributed to this article.

Write to Jacob Bunge at jacob.bunge@wsj.com

(END) Dow Jones Newswires

August 03, 2016 02:48 ET (06:48 GMT)

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