ADM earnings double, helped by U.S.-China trade row

Source: By Tom Polansek, Reuters • Posted: Thursday, August 2, 2018

CHICAGO (Reuters) – Archer Daniels Midland Co’s net profits doubled in the second quarter and beat Wall Street estimates, after a drought in Argentina and the U.S.-China trade spat boosted the U.S. grain merchant’s trading and oilseed processing businesses.

Shares were up 1 percent at $47.86 after touching a three-year high on the New York Stock Exchange.

Operating profits for ADM’s origination business, which includes grain trading, in the April to June period more than tripled from a year ago to $189 million.

The company benefited from higher volumes and margins for U.S. corn, soybean and wheat exports as the drought reduced harvests in Argentina, a major supplier of the crops, Chief Financial Officer Ray Young said.

The ongoing trade battle also increased China’s demand for crops from South America, motivating other buyers to make purchases from the United States, he said on a conference call.

In oilseeds, operating profits jumped 70 percent to $341 million as processing volumes reached a record high for the quarter, thanks to robust margins and China’s demand for South American soy, according to the company.

“ADM is capitalizing on the market dislocations caused by the U.S.-China trade issues by shipping Brazilian beans to China and crushing cheap U.S. beans into soymeal and oil,” Stephens analyst Farha Aslam said.

Washington this month imposed tariffs on $34 billion of Chinese imports. In return, China levied taxes on the same value of products from the United States, including soybeans and sorghum. Traders rushed shipments of U.S. soy to China before the tariff took effect on July 6.

Commodity trader Cargill Inc’s [CARG.UL] latest earnings also benefited from trade tensions. Rival Bunge Ltd (BG.N) is due to report quarterly results on Wednesday.

In May, ADM said it would take a hit of about $30 million in the second quarter due to Beijing’s decision to impose stiff anti-dumping tariffs on sorghum, a livestock feed.

However, those losses were slightly smaller than expected and offset by strong performance in other areas, such as ocean freight, according to the company.

“I sort of think this tariff is good for you,” Morgan Stanley analyst Vincent Andrews told ADM executives on the call.

More global demand for corn and wheat could shift to the United States because of hot, dry weather reducing global grain harvests, ADM Chief Executive Juan Luciano said.

Crop losses in Europe, the Black Sea region and Argentina represent a turnaround after years of global oversupply depressed grains prices and made it difficult for global grain merchants to make a profit buying and selling food staples such as corn, soy and wheat.

Net profit attributable to ADM rose to $566 million, or $1 per share, in the second quarter, from $276 million, or 48 cents, a year earlier.

Excluding certain items, the company earned $1.02 per share, beating analysts’ estimates of 77 cents per share, according to Thomson Reuters I/B/E/S.

Total revenue rose 14.2 percent to $17.07 billion.

Reporting by John Benny in Bengaluru and Tom Polansek in Chicago; Editing by Saumyadeb Chakrabarty and Jonathan Oatis