ADM reports strong Q1, expects good ethanol margins for Q2, Q3

By Susanne Retka Schill | May 02, 2017

Archer Daniels Midland Co. reported $339 million net earnings for the first quarter, seeing improved results across all business units compared to a year ago.

Corn processing operating profits were up $46 million from the same quarter a year ago at $177 million, dominated by profits from the company’s starch and sweeteners business totaling $161 million. Almost half of the improved earnings compared to the previous year, however, came from bioproducts, where ADM’s ethanol production is recorded. Bioproduct earnings improved $22 million year-over-year, from a $12 million loss in 2016 to $10 million in operating profits for Q1 2017. The segment processed 5.5 million metric tons in the quarter. The corn hedge timing effects of $7 million that were added to profits nearly equaled the profit from the bioproducts sector.

Corn segment earnings were affected by major repairs to the Decatur, Illinois, corn processing facility, which suffered a weather-related power outage in February. During restart, a significant leak was found in a 72-inch pipe feeding cooling water to the wet mill. In the question and answer period during the investor call, ADM Chairman and CEO Juan Luciano said the repairs cost $10 million. 

Oilseeds processing dominated ADM’s overall business with $313 million in processing operating profits, up $53 million from the same period last year. The agricultural services segment profits totaled $81 million in Q1, Wild Flavors and specialty ingredient profits totaled $75 million.

“Our year-over-year results improved as a company and in all four of our business segments during the first quarter, and we continue to be on course for a stronger 2017,” Luciano said. “Ag services was up for the quarter, with higher results in U.S. grain and transportation operations. The corn business delivered a good quarter, with improved performances across their portfolio. Oilseeds earnings were up, including solid results in global softseeds and from our equity investment in Wilmar. WFSI results were higher, led by WILD Flavors. 

“We are continuing to execute the long-term strategic plan that we launched in 2012, and we are seeing the results. We have strengthened our core, improving our cost positions and implementing measures to improve results where necessary. Our operational excellence initiatives have delivered significant savings and efficiencies.

And we continue to grow strategically by expanding into new geographies and increasing our capabilities in food, beverage and feed. Those actions contributed to the improved results we saw in the first quarter despite muted margin environments in some businesses. The continued momentum in the execution of our plan gives us confidence that we will deliver sustainable value creation.”

Luciano also said the company is expecting a significant improvement in corn processing in Q2, projecting solid demand in starches and sweeteners. “We expect strong U.S. demand for ethanol in the second and third quarters, normalizing in the fourth quarter.”  Luciano projects exports will range between 1.1 and 1.3 billion for 2017, with Brazilian ethanol imports balancing China’s reduced imports. “India and Canada continue to grow,” he said, “and we continue to grow new markets.” He mentioned Japan and Mexico as two markets with potential to grow.

When asked about depressed global commodity prices and burgeoning supplies, Luciano pointed out that as long as there is good weather, there are good crop inventories, but with strong usage worldwide, bad weather could turn that around.

Regarding talk about changes to NAFTA, Luciano said there are issues on both the Mexican and U.S. side, and after 23 years, an update would be welcomed. “Sweeteners need open trade,” he said, noting that U.S. sweeteners heading to Mexico are relatively balanced by Mexican sugar moving north.  “We are at the table. We are helping with data and with our opinion, on both sides,” he said. Late in the question period he added, “We don’t believe the two countries are going into trade war. We think there will be negotiations.” Luciano also said that ADM has worked to develop new products other than high fructose corn syrup, should exports falter. “We’ve seen good results, so we have optionality,” he said.

When asked whether prospects for biomass-based chemicals were meaningful in the next three to five years, Luciano replied that the biggest factor is to get a sponsoring customer and application. “The technology works and the economics can be made to work, with both today’s oil and commodity prices,” he said. “We are engaged with people looking for those optionalities as they try to attach their brands to renewables. You’ve got to get the timing right, you don’t want to be too early.”