Market Matters Blog

Merchandising Makes Money Once Again

The merchandising and agribusiness divisions of two of the nation's largest grain trading companies are once again making a profit.

Archer Daniels Midland Company and Bunge have both struggled with transportation issues and sourcing grain from reluctant farmers this year, but it appears the tides have turned, based on their second quarter financial reports. What's more, both companies see the strong performance in the second half of the year.

A few key points show up in each company's press releases. Favorable ethanol production margins played a big role. The renewal of export business was another. Lower crop prices and anticipation of a large harvest on its way also played a role in the company's rosy outlooks.

Last week, Bunge announced its Agribusiness sector nearly doubled its earnings before interest and taxes over the same quarter last year. It expects to meet or exceed its targets for the year.

"We had a strong performance in the second quarter with all segments reporting higher year-over-year results. Strong global oilseed processing margins, driven by big crops and growing demand, led to significantly better results in agribusiness," Bunge CEO Soren Schroder said in the company's press release. "Improved operational and commercial performance and the addition of our new wheat mills in Mexico contributed to a record quarter in food & ingredients. The results demonstrate the potential of this segment and the value of managing integrated oilseed and grain chains."

On Tuesday, ADM announced that its earnings from merchandising and handling increased to $101 million from $14 million during the same period last year. Transportation profits increased to $27 million from $3 million. Meanwhile, it's corn processing division profits increased $69 million, and it's oilseeds division profits increased $18 million.

"In the second quarter, the ADM team continued to execute very well and delivered strong results. We capitalized on robust ethanol demand, a recovery of U.S. grain export volumes and continuing strong demand for oilseeds products," ADM Chairman and CEO Patricia Woertz said in a press release. "Today, the crops in North America and Europe are developing nicely, so we are preparing for what could be very large harvests."

Bunge's Chief Financial Officer Drew Burke went into a little more detail. "In agribusiness, demand for agricultural commodities should remain strong due to the combination of lower crop prices and robust livestock economics. Crops in North America and Europe are developing well, supporting good forward soybean and softseed processing margins in these regions. After a strong period of farmer selling in South America, we expect a slower pace in the second half of the year. While this would reduce utilization in the region, it should provide additional export opportunities for the U.S. and Europe. It will also skew results more towards the fourth quarter."

The ADM press release can be found here:…

The Bunge press release can be found here:…



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8/11/2014 | 10:32 AM CDT
You make a very good point Roger. Corn certainly has an uphill battle in terms of demand. With China's pickiness about the MIR 162 (and likely the Duracade trait after harvest), strong export numbers will depend on demand from a lot of other countries. One thing that I've found interesting this year is the resurgence of Western Hemisphere demand. China's bid up the price of our sorghum crop, so Mexico imported more U.S. corn. The FTA with Colombia kicked in this year and they're in the running to be one of our top 3 buyers this year. That's still not enough, however, to chew through what China's left on the table + a likely 2 BB carryout. Maybe we're just going to have to wait for that cattle herd to recover? Let's hope the ethanol export economics stay a bright spot!
Roger Cooper
8/10/2014 | 8:01 PM CDT
Go back 10 or 20 years and look at corn exports and feed use. They are basically flat lines! In a really good year together they might get rid of say 7B bu.! Ethanol uses about 5B bu. annually (thank goodness)! Corn is going to get real cheap in places if it can't be moved or consumed if we end up with an extra 2-4B bu. carryout down the road a year or two from now! 300 bpa can't fix low prices nationwide under current consumption scenarios no matter how many seed companies tell you how much extra grain this world's population is going to need in the future! It's a train wreck coming without programs to limit production or additional ways to use-up the extra bushels! What say you, Katie?????
andrew mohlman
8/5/2014 | 12:36 PM CDT
Questionable ethics of those counting huge crop that is not in bin. Huge amount of fresh water being pump in nebraska for no profit what a waste of a resource