ADM CEO: China Could Hold Out

Growing View Is China Will Stretch Soybean Supplies Until Early Brazilian Harvest

Chris Clayton
By  Chris Clayton , DTN Ag Policy Editor
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USDA lowered China's overall soybean imports by 9.5% this week. On an earnings call Tuesday, ADM's CEO said it is increasingly likely China will not buy from the U.S. market as the U.S.-China trade dispute continues. (DTN photo illustration)

OMAHA (DTN) -- Archer Daniels Midland's chairman and CEO said Tuesday during an earnings call that it's possible China may not need to buy U.S. soybeans before early harvest arrives for Brazil's soybean crop.

Juan Luciano, responding to an analyst's question about possible U.S. soybean exports to China in the next few months, said there remains a question of whether China will need to come in and buy U.S. beans before Brazil can start supplying with its new crop.

"The reality is the window is getting shorter, and China is finding ways not to use U.S. beans," Luciano said. Early harvest in Brazil could make it so China doesn't need to shift to the U.S., he added. "Maybe China will hold off buying beans until they can overlap with Brazil."

Luciano's comment reiterates a similar take last week by Bunge Ltd. CEO Soren Schroder who also told analysts China has lowered protein inclusion in livestock meal and China could "wiggle through into new-crop supplies in Brazil" and supply themselves with Brazil and Argentina "without having to return to the U.S. in case there is no resolution to the trade situation."

Those views come after USDA's office in China lowered China's overall soybean import estimate 9.5% to 85 million metric tons.

Brazilian farmers have reportedly planted as much as 60% of their crop, which is a record pace and 19% faster than their five-year average for planting, according to the consulting group AgRural. Soybean harvest could begin in some areas as early as late December.

Chinese officials over the past week have indicated they are ready to talk to the U.S. to resolve some of the trade issues that have led both countries to impose tariffs on goods. President Donald Trump and Chinese President Xi Jinping are expected to meet at global talks in Argentina later this month.

U.S. soybean outstanding sales to China are at 693,000 metric tons for the current marketing year, just 9% of China's purchase volumes a year ago, according to USDA.


ADM on Tuesday reported net earnings of $536 million for its third quarter with adjusted profits at $861 million for the quarter, up 60% from the same quarter last year.

ADM reported earnings per share of 92 cents, up from 45 cents for the same quarter last year. As U.S. soybean prices remain low, profit continues in oilseed crushing. ADM's gains from that segment of the business rose $236 million to $349 million year over year. ADM officials cited continued strong demand for crush volumes, a short crop in Argentina and the U.S.-China trade situation as leading to a good global crush environment.

Luciano noted South American origination was managed well, including transportation costs. ADM also acquired two Brazilian soybean processing plants from Algar Agro in recent months to boost soybean processing and exports out of South America.

ADM officials said the do expect to see increased exports of wheat and soybeans out of the United States through the rest of the marketing year because of favorable supplies.

"The rest of the world is really coming to the United States for its products, and we expect that will continue in 2019," said Ray Young, ADM's chief financial officer.

ADM also noted it weathered a weak ethanol industry margin in its carbohydrate sectors for $288 million in third-quarter profits, down $12 million from the 2017 third quarter. Starches and sweeteners remained strong in sales, but saw higher costs.

"The issue continues to be ethanol, and recently we have seen some people taking capacity down," noting that the driving season is slowing down, Luciano said. He added that low ethanol prices could lead to blenders using it more as an octane booster that would increase demand.

Growth since 2014 has focused on growing the geographic footprint through new plants and acquisitions, and getting into a broader mix of foodstuffs and nutrition, adding more than $5 billion in various expansions while dropping $2 billion in divestures as well. New deals just integrated into ADM will add to growth in 2019, Luciano said.

"We believe clearly in 2019 we can grow earnings compared to 2018," Luciano said.

Not everything has gone ADM's way in 2018. Luciano cited problems with the company's peanut business, including difficulty merchandising in North America and a lost peanut crop in Argentina. "Peanuts was a very strange situation that normally would not happen to us," Luciano said.

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Chris Clayton