ADM Global Trading Desk Posts Loss After Crop-Price Swings

  • Company blames trade loss on commodity price moves in March
  • CEO `cautiously optimistic' on outlook for second half of year

Archer-Daniels-Midland Co., one of the world’s largest merchants of agricultural commodities, reported weaker-than-expected earnings in the first quarter after its Swiss-based international trading desk booked a loss and the company grappled with lower U.S. grain-export volumes.

Net income fell to 39 cents a share from 77 cents a share a year ago, Chicago-based ADM said in a statement on Tuesday. Excluding one-time items, earnings were 42 cents, less than the 45-cent average of 11 estimates compiled by Bloomberg.

The poor performance of the global trading desk, which made a profit a year earlier, was in part attributable to commodity-price moves at the end of March, Chief Financial Officer Ray Young said on the company’s earnings call.

"A lot of our positions kind of went negative, but most of that is unrealized in nature," he said. "We will have to probably figure out where these contracts actually settle, where the prices will end up."

The trading loss is a setback for Chief Executive Officer Juan Luciano, who a year ago said he was "unhappy" with the volatility in trading earnings and promised to fix the problem with the creation of a new trading operation.

Dollar Impact

The global trading desk, based in Rolle, a Swiss town about 35 kilometers (22 miles) from Geneva, merged several existing ADM trading units with those of Alfred C. Toepfer International, a century-old merchant. ADM took full control of Toepfer in 2014 after it acquired the remaining 20 percent it didn’t already own from French cooperative InVivio.

ADM has also suffered in the first quarter as U.S. corn exports were less competitive than supplies from Brazil because of the stronger dollar, curbing results in the agricultural services segment, ADM’s business that buys, stores and transports crops. The unit, the company’s biggest by sales, and which also housed the global trading desk, saw operating profit fall 61 percent. Luciano said on the call that earnings for the unit in the second quarter may be similar to the first.

While ADM’s sweeteners and starch business, part of the corn processing segment, had a "strong" performance, ethanol margins were lower. Luciano said the ethanol business may be profitable in the second quarter and the company is continuing its strategic review of its dry mills.

CEO Outlook

Oilseeds-processing profit was down as increased crushing of soybeans in Argentina weakened margins globally. Still, the company is more optimistic about its oilseed business now than at the beginning of the year as supplies tighten amid strong demand, Luciano said.

Like his counterpart at rival trader Bunge Ltd., which also reported earnings last week, Luciano also said he sees a shift to more positive market conditions later this year.

"The first half of the year continues to present a challenging environment," Luciano said in the statement. "However, we are cautiously optimistic that reduced South American soybean and corn production could bring improved soybean crush margins and merchandising opportunities in the second half of the year.”

Sales fell 18 percent to $14.4 billion in the first quarter, trailing the $16.9 billion average estimate. The shares fell 2.9 percent to $39.10 in New York on Tuesday, their biggest drop since March 8.

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