BG Bunge Global SA

Archer Daniels Midland Company (ADM) announced that it is acquiring the soybean facility from Prairie Pride, Inc. The company also announced its intention to form a partnership deal with the company for its biodiesel business. Both the acquisition and the partnership deal will augment the growth strategy of Archer Daniels and go well with the integrated business model of the company.

Prairie Pride, Inc. is a new-generation producer cooperative formed to convert soybeans into biodiesel fuel and soy meal. The facility began producing biodiesel in late 2007 and processing soybeans in August 2008.

Archer Daniels is one of the leading players in the global food processing industry and commands a massive network of more than 560 processing and sourcing facilities and 27,000 vehicles operating across the Americas, Europe and Asia for transportation of agricultural commodities. This provides a strong competitive advantage to the company and strengthens its well-established position in the market.

Archer Daniels is in the midst of a brisk expansion strategy, which includes expanding crushing capacities in North America, and fertilizer blending and biodiesel capacities in South America. Moreover, in Europe, the company has acquired processing facilities in The Czech Republic and Germany. These initiatives offer a strong upside potential to the company.

However, the agricultural commodity-based business is capital-intensive and hence requires sufficient liquidity and financial flexibility to fund the operating and capital requirements. For this, Archer relies on cash generated from its operations and external financing. Limitations on access to external financing could negatively affect the company’s operating results.

Additionally, the company faces intense competition from its rivals such as privately held Cargill Inc., and Bunge Ltd. (BG) and Corn Products International Inc. (CPO). Furthermore, Archer Daniels also encounters competition from local and regional players in the countries where it operates.

Archer Daniel holds a Zacks #3 Rank, which translates into a short-term Hold recommendation.

 
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