ADM expects to benefit from low corn prices in 2014

by Jeff Gelski
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DECATUR, ILL. — Favorable global crop numbers, especially for corn, might mean a profitable fiscal 2014 for Archer Daniels Midland Co., said John Luciano, executive vice-president and chief operating officer, in a Feb. 4 earnings conference call. One headwind, however, may come in a proposed Environmental Protection Agency rule on the Renewable Fuel Standard.

“The world will have record supplies of corn, oilseeds and wheat,” Mr. Luciano said. “These large supplies will present an opportunity for us to utilize our global storage and transportation assets.”

The conference call came on the day ADM reported results for the fourth quarter and fiscal year ended Dec. 31, 2013. Operating profit for corn processing rose to $814 million from $278 million in the previous fiscal year. Operating profit for agricultural services dropped to $380 million from $779 million in the fiscal year as farmers in the fourth quarter held onto their corn instead of selling it.

“Three years of low starts and recent lower corn prices meant U.S. farmers held onto more of their corn crop than usual, causing basis to remain at historic highs for the fourth quarter,” Mr. Luciano said.

He classified the slower farmer selling as mostly a delay.

“We saw last year the same thing in South America the first quarter, and I called that as a delay, and we saw the recovery during the rest of the year,” Mr. Luciano said. “So we think that probably will come to market.”

In the ethanol business, lower corn costs, higher U.S. gasoline demand and strong exports supported lower industry inventories and higher margins in the fourth quarter of fiscal 2013, he said.

Some anxiety entered the ethanol market on Nov. 18, 2013, when the E.P.A. proposed 2014 renewable fuel standards that would reduce the volume of ethanol refiners must add to the fuel supply relative to targets established under the Renewable Fuel Standard in 2007. The E.P.A. proposed 15 billion to 15.52 billion gallons of ethanol to be added to the fuel supply in 2014, which compared with 18.15 billion gallons as targeted by current law.

During the Feb. 4 call, Vincent Andrews, an analyst with Morgan Stanley, asked Patricia Woertz, chairman, president and chief executive officer of Decatur-based ADM, how upset she would be if the E.P.A. ruling lowered the Renewable Fuel Standard level.

“Any time the government makes a plan, and you make investments related to that plan, you are disappointed if they change the rules in the game,” she said. “But, I think to your point, economics are kind of the rule of the day, and economics generally override what is even some of the demand assumptions.”

Mr. Luciano said ADM is considering comments on the proposed E.P.A. rule.

“Overall, ethanol blending economics remain strong,” he said. “That should drive some continued expansion of both E15 and E85.”

The drop in corn prices makes ethanol a competitive fuel globally, he said.

“So the export demand has been very strong to traditional places and sometimes not-so-traditional places,” Mr. Luciano said.

Net earnings slipped for ADM in the fiscal year as charges affected fourth-quarter results negatively. Net earnings attributable to ADM were $1,342 million, or $2.02 per share, in the year, which compared with $1,375 million, or $2.08 per share, in the previous fiscal year. Net sales and other operating income for the year were $89,804 million, down from $90,559 million.

Charges related to the attempted acquisition of GrainCorp Ltd. affected fourth-quarter results as did ADM’s Brazilian sugar mill. After-tax charges related to GrainCorp were $167 million, or 25c per share. ADM also recorded an impairment charge of both pretax and after-tax of about $50 million related to the Brazilian sugar mill based upon an updated assessment of the future cash flow of the investment.

The Australian Federal Treasurer in November 2013 prohibited the proposed acquisition of GrainCorp. ADM continues to own 19.85% of GrainCorp.

“We are pleased with our current ownership stake and have no plans to sell it at this time,” Ms. Woertz said in the Feb. 4 call.

Net earnings attributable to ADM of $374 million, or 56c per share, in the fourth quarter compared with $510 million, or 77c per share, in the fourth quarter of the previous fiscal year. ADM said adjusted earnings per share in the fourth quarter were 95c, up from 60c in the previous year’s fourth quarter. Net sales and other operating income in the fourth quarter were $24,143 million, down from $24,921 million.
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