April 29 (Bloomberg) -- Archer Daniels Midland Co., the world's largest grain processor, said third-quarter profit rose 42 percent, topping analyst estimates, as it increased commodity trading and soybean crushing.

Net income climbed to $517 million, or 80 cents a share, in the three months through March, from $363 million, or 56 cents, a year earlier, Decatur, Illinois-based ADM said today in a statement. Sales rose 64 percent to $18.7 billion. The company was expected to earn 69 cents a share, the average estimate of seven analysts surveyed by Bloomberg.

Profit in the agricultural-services unit, which stores grain and transports it to market, surged almost eightfold to $366 million as rising demand pushed wheat, soybean and corn prices to records. Volatile crop markets are creating ``unprecedented'' profit opportunities, Chief Executive Officer Patricia Woertz said in the statement.

``Ag Services drove the results, more than offsetting cost- related weakness in ethanol and high-fructose corn syrup,'' Morgan Stanley analysts led by Vincent Andrews said today in a report. ``The company's global, diversified, fully integrated value chain is an enormous undervalued asset in the current agriculture operating environment.''

Andrews rates the shares ``overweight'' and had forecast profit of 83 cents a share.

ADM fell $1.84, or 3.9 percent, to $45.58 as of 4:15 p.m. in New York Stock Exchange composite trading after the company announced delays in completing some ethanol projects. The shares have gained 17 percent in the past year and reached a record $48.95 April 22.

Record Crop

The company, the operator of more than 350 grain elevators globally, benefited from last year's record U.S. corn crop, which the Department of Agriculture estimated at 13.074 billion bushels. Farmers planted the most acres since 1944, boosting output by 24 percent from 2006.

``Our U.S. elevator and river system locations continue to benefit from higher capacity utilization rates and improved storage and handling margins, particularly on export-related business as last crop year's large North American harvest continued to work through our system,'' Chief Financial Officer Steven Mills said during a conference call with analysts and investors.

Soybean prices averaged 82 percent higher in the quarter and reached a record $15.8625 a bushel on March 3 in Chicago after U.S. farmers reduced plantings last year to the lowest in more than a decade.

Wheat Prices

The average price of wheat more than doubled from the year- earlier quarter and reached a record $13.495 a bushel on Feb. 27 as importers increased purchases amid concern the world's growers wouldn't produce enough to meet demand.

Earnings from crushing oilseeds rose 28 percent to $237 million as ``strong'' global demand for protein meal and vegetable oil boosted processing margins in North America and South America and increased worldwide crushing volumes, ADM said.

Earnings from processing corn into sweeteners and ethanol, the biggest profit contributor last year, fell 31 percent to $172 million because of higher costs for corn and energy, ADM said.

Corn prices averaged 28 percent higher during the quarter than a year earlier and reached a record $6.24 a bushel today because of demand for livestock feed and biofuels.

Ethanol Production

ADM, the third-largest U.S. ethanol producer, with 1.07 billion gallons of annual capacity, said profit from corn bioproducts, which includes ethanol refining, fell 38 percent to $74 million. Ethanol futures traded in Chicago averaged 4.5 percent higher in the quarter than a year earlier.

The company expects improved ethanol prices in the current quarter as demand continues to grow, Mills said.

``We look cautiously further out as it is still unclear how quickly the industry will absorb the additional capacity scheduled to come into production,'' Mills said.

Woertz said ADM won't retreat from its ethanol business amid recent calls by some lawmakers and livestock company executives for the U.S. to reduce support for biofuel production.

Tyson Foods Inc. Chief Executive Officer Richard L. Bond yesterday blamed U.S. ethanol policies for causing a crisis by diverting corn from the food supply. Tyson, the second-largest U.S. poultry producer, yesterday posted its first loss in six quarters as surging corn and soybean prices boosted the cost of feeding chickens.

Ethanol Policies

Quitting ethanol-making would be ``wrong,'' ``dangerous'' and a ``mistake,'' Woertz said during the call.

``I actually find it sad and maybe even a little ironic that these misguided attacks on biofuels are directed at the one alternative we actually have today to transportation fuel,'' Woertz said.

Construction projects valued at about $2.5 billion have faced ``substantial'' delays because of weather, late steel shipments and limited labor, John Rice, executive vice president of commercial and production, said during the call.

An ethanol plant in Columbus, Nebraska, will be completed in the third quarter of calendar 2009 instead of the fourth quarter of this year, and a plant in Iowa will be delayed until the first quarter of 2010, instead of the third quarter of 2009.

Earnings from the sale of sweeteners such as high-fructose corn syrup, used in candy and sodas, fell 26 percent to $98 million.

Poet LLC, based in Sioux Falls, South Dakota, is the largest ethanol producer, with a capacity of 1.25 billion gallons, followed by VeraSun Energy Corp., according to the most recent data from the Washington-based Renewable Fuels Association.

To contact the reporter on this story: Choy Leng Yeong in Seattle at clyeong@bloomberg.net.

Last Updated: April 29, 2008 16:25 EDT