Crop Trading Giant ADM Sees Years of Tight Markets Fueled by War

Source: By Michael Hirtzer, Bloomberg • Posted: Wednesday, April 27, 2022

Company reports its most profitable quarter on record ADM shares climb as much as 5.5% in New York trading

Archer-Daniels-Midland Co., one of the world’s biggest agricultural traders and processors, predicted several years of tight supplies due to a confluence of smaller crops in the Americas and the war in Ukraine.

The company announced its most profitable quarter ever, helped by strained crop supplies that boosted trading margins as well as growth in its nutrition segment. ADM shares gained as much as 5.5%.

Crop futures have surged after Russia’s invasion in Ukraine disrupted global supplies. Weather woes across the world’s major producers including a drought in Brazil are adding to fears of shortages.

Two “good seasons” of crops in the Americas are needed to get back to a comfortable situation on supplies, Chief Executive Officer Juan Luciano said on a conference call Tuesday.

“Looking forward, we expect reduced crop supplies — caused by the weak Canadian canola crop, the short South American crops, and now the disruptions in the Black Sea region — to drive continued tightness in global grain markets for the next few years,” Luciano said in a statement.

The Chicago-based company reported adjusted earnings of $1.90 per share for the first quarter of 2022, compared with $1.39 a year ago. That beat the average estimate of analysts compiled by Bloomberg calling for $1.41. Revenue of $23.7 billion was almost 14% higher than the consensus of $20.8 billion.

Archer-Daniels-Midland shares are up more than 35% this year

Crop traders like ADM are taking advantage of strong margins, Stephens Inc.analyst Ben Bienvenu said in a note after earnings were released. “We expect ADM to continue chugging along in this constructive fundamental backdrop,” said Bienvenu.

ADM was lifted by strong profit margins for turning oilseeds like soybeans into vegetable oil for cooking and fuel and meal for animal feed. Profits in animal nutrition were nearly double from a year ago amid strength in amino acids, which typically see increased demand as supplements when feed prices are soaring. Results also were higher in starches and sweeteners, which includes ADM’s corn wet ethanol mills.

ADM is the ‘A’ in the quartet of agricultural traders known as the ABCDs. The ‘B’ — Bunge Ltd. — reports quarterly earnings Wednesday.

(Updates with details from investor call and adds chart.)