Archer Daniels Midland Faces Weakened Crop, Ethanol Market in 2012, Lowers Spending Outlook for Next Six Months

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Researched by Industrial Info Resources (Sugar Land, Texas)--Agricultural product leader Archer Daniels Midland Company (NYSE:ADM) (ADM) (Decatur, Illinois) reported diminished earnings for the company's fiscal fourth-quarter and full-year 2012, as tight U.S. crop supplies and negative ethanol margins significantly weakened exports and domestic merchandising results. Net income was reported to be $284 million for the quarter, a 25.46% decrease from fourth-quarter 2011, and $1.22 billion for the year, a 39.93% decrease from 2011.

Total net sales were reported to be $22.68 billion for the quarter, a 0.85% decrease from the same period last year, and $89.04 billion for the year, a 10.36% increase from 2011. Diminished ethanol margins, that were partly a result of industry-wide supply exceeding demand, and lower North American softseed crushing margins were major factors in ADM's weakened segment results. Export volumes were significantly lower, as U.S. merchandising results and crop supplies were down from the previous year. ADM also was negatively affected by weaker European biodiesel results and weaker press margins for cocoa. However, South American soybean results improved sharply, while sweeteners and starches saw gains in export demand and selling prices.

Mark-to-market effects were noticeable. The previous year saw favorable mark-to-market timing effects in Europe, which were absent in 2012; the net decrease from this difference was about $70 million. Higher net corn costs were attributed partly to the timing effects of economic hedges, gains from which were recognized earlier in the year. Capital spending for the full year totaled $1.5 billion, about $200 million of which was for acquisitions.

Industrial Info is tracking $362 million in active projects involving ADM, including the $21 million construction of a grassroot loader grain elevator in Park River, North Dakota, and the $10 million construction of a grassroot food transfer terminal in Chattanooga, Tennessee. The Park River project involves the construction of a 1.8 million-bushel, concrete and steel loader grain elevator with the capability to load 110-car shuttle trains of corn, soybean and wheat. The Chattanooga project involves the construction of a 50,000-square-foot building to transfer liquid and bulk sweetener products, including corn syrup, high fructose corn syrup, dry starch, and dry and liquid sugar, from railcars to trucks for customer delivery.

"Of our $1.2 billion in global growth spending, about half was spent outside the U.S., and we targeted the majority of this growth spending in the Oilseeds and Ag Services divisions, as part of our capital allocations strategy," said Juan Luciano, the executive vice president and chief operating officer of ADM, in a conference call. "Our largest in the 2012 fiscal year included: the acquisitions of Elstar Oils in Poland; our construction of the Paraguay soybean crush plant, which is on track to start operations by harvest; our purchase of a group of grain elevators in Wisconsin; our acquisition of storage facilities in east Slovakia; and our purchase of barges for the Mississippi River to support export operations."

While sales were mostly flat in ADM's major segments when compared to fiscal fourth-quarter and full-year 2011, profits were almost entirely weaker:

• The Oilseeds Processing segment reported $331 million in profits for the quarter, a 26.28% decrease from the same period last year, and $1.3 billion for the year, a 22.96% decrease from 2011.
• The Corn Processing segment reported $74 million in profits for the quarter, a 39.34% decrease from fourth-quarter 2011, and $261 million for the year, compared with $1.08 billion in 2011.
• The Agricultural Services segment reported $123 million in profits for the quarter, a 64.35% decrease from the same period last year, and $947 million for the year, a 28.42% decrease from 2011.
• All other segments reported a total of $16 million in profits for the quarter, compared with $5 million in fourth-quarter 2011, and $15 million for the year, a 61.54% decrease from 2011.

Processing results were weaker for the quarter, but showed some improvement for the year:

• Oilseeds Processing reported 7.79 million metric tons produced in the quarter, a 10.73% increase from the same period last year, and 31.16 million metric tons produced in the year, a 5.17% increase from 2011.
• Corn Processing reported 6.04 million metric tons produced in the quarter, basically unchanged from fourth-quarter 2011, and 24.62 million metric tons produced in the year, a 5.15% increase from 2011.
• Wheat and cocoa reported 1.68 million metric tons produced in the quarter, a 2.61% decrease from the same period last year, and 7.16 million metric tons produced in the year, a 0.32% decrease from 2011.

Luciano said that solid demand for core sweeteners means industry sweetener capacity will remain tight in the near future. Ethanol inventories are continuing to decline because of reduced production. U.S. corn and soybean yields have been diminished by drought, although wheat was less affected. U.S. corn exports are expected to be lower, but export demand for soybeans and wheat is expected to improve.

ADM's capital spending is expected to total between $500 million and $600 million from July through December 2012.

"The reduced rate of spending reflects a more cautious view of the global macroeconomic and commodities environment, and likely increased needs for working capital," Luciano said in the conference call. "Our spending in this period will again be focused on strengthening our international footprint."

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