Archer Daniels Midland's Profit Slips -- Update

By Jacob Bunge 

Archer Daniels Midland Co. reported a narrow decline in first-quarter earnings as the company's grain-trading division struggled against bad weather and slow selling of crops by farmers.

Continued challenges in the unit offset stronger results in ADM's soybean processing and its ethanol division, where profits climbed thanks to an increased supply of U.S. corn, executives said Tuesday.

"With farmers not selling and [corn prices] not breaking and the weather getting in the way, that was the combination" that challenged grain-trading results, ADM President Juan Luciano told analysts on a conference call. "We're working very hard to make that a stronger business."

ADM ranks among the world's largest dealers in corn, soybeans, wheat and other major crops, buying them from farmers and selling them to governments and food companies. It also processes the commodities into food ingredients and fuels. The company, based in Decatur, Ill., had $90 billion in revenues last year.

ADM on Tuesday reported a profit of $267 million, or 40 cents a share, down from $269 million, or 41 cents a share, a year earlier. Excluding inventory-related impacts and other items, adjusted earnings rose to 55 cents from 46 cents.

Revenue decreased 4.7% to $20.7 billion.

Analysts polled by Thomson Reuters expected per-share profit of 74 cents and revenue of $22.04 billion.

ADM shares fell 3.3% to $42.91 in mid-morning trading.

ADM and other agricultural companies benefited from last year's bountiful harvests in the U.S. and elsewhere, reducing the cost of securing corn and soybeans to trade and process into feed for livestock or oil for food production. ADM's oilseed division earned $358 million over the first quarter and its corn-processing unit earned $261 million, as cheaper corn helped ADM export more ethanol at favorable prices, Mr. Luciano said.

U.S. farmers, however, responded to the drop in corn prices stemming from last year's record harvest by stashing grain in new and larger storage bins. These have allowed farmers to hold off selling grain to merchants like ADM at the lowest rates, and wait for prices to move higher, a phenomenon that continued to cut into ADM's profits, according to Mr. Luciano.

The brutal winter in North America also hit the grain trade, bogging down trains and boosting the cost of transporting products in the U.S. and Canada. Mr. Luciano estimated Tuesday that weather-related disruptions shaved $20 million to $30 million from ADM's grain-trading results. Agricultural services, the division that includes ADM's grain-trading operations, earned $153 million in the quarter.

Mr. Luciano told analysts that another big harvest in the U.S. would help the business regain strength, and farmers would have to empty their bins by late summer. "We still need another strong corn crop for the pipeline to be refilled, and for us to have the full potential of the ag services earnings," he said.

China's demand for animal feed, which analysts have begun to question this year as herds there shrunk and soybean processors struggled, remains "solid" and should pick up in the second half of this year, Mr. Luciano said. In the U.S., ADM's feed business later this quarter may begin to feel the impact of a swine virus that has killed millions of young pigs and dented pork production, reducing demand for feed, Mr. Luciano said.

Tess Stynes contributed to this article.

Write to Jacob Bunge at [e-mail]

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