Chicago | Reuters — U.S. agricultural trader Archer Daniels Midland (ADM) on Tuesday cautioned that massive global grain stocks are making it difficult to turn a profit trading grain internationally, sending its shares plummeting despite reporting a higher first-quarter profit.
The warning highlighted a string of trading woes at ADM, which has shed several key traders and consolidated offices amid a global grains glut.
The Chicago-based agribusiness said the outlook for its agricultural services segment, its largest in terms of revenue, appeared weaker than it did at the beginning of the year.
The segment makes money buying, selling, storing, shipping and trading grains and oilseeds. It includes ADM’s global trading desk, which turned in another weak quarter with lower year-on-year earnings.
“We’re working very hard in ag services to continue to improve our operations. We have been or facing a couple of years of very strong headwinds into that business,” CEO Juan Luciano said on a conference call with analysts.
“With ample stocks around the world, there is a very subdued environment for us to make profitable international trades,” he added.
ADM shares dropped more than 7.5 per cent to $42.28 (all figures US$).
The company will continue to analyze its trading operations for cost savings, but that most of the restructuring was done, he said.
The company said the profit outlook for its corn and soybean processing segments this year was stronger than earlier thought, offsetting the weaker view for agricultural services.
Brisk U.S. ethanol exports and strong U.S. grain exports following record corn and soybean harvests last autumn helped propel a 47 per cent jump in net first-quarter earnings over last year’s weak first quarter.
Bumper crop harvests in South America are adding to the world grain oversupply, but slow selling in Brazil has kept U.S. exports competitive in the global marketplace. South American competition may be a challenge in the second half of 2017.
Excess world grain stocks remain headwinds for ADM and rivals Bunge, Cargill and Louis Dreyfus, collectively known as the ABCD companies that dominate global grain trading.
Net profit attributable to ADM rose to $339 million, or 59 cents per share, in the quarter ended March 31, from $230 million, or 39 cents a share, a year earlier.
Excluding items, the company earned 60 cents per share, missing the average estimate by two cents, according to Thomson Reuters I/B/E/S.
Revenue rose to $14.99 billion from $14.38 billion.
— Karl Plume reports on agriculture and agribusiness for Reuters from Chicago. Additional reporting for Reuters by Siddharth Cavale in Bangalore.