- Parts of the Mississippi River are lower than they have ever been, according to National Weather Service records from 1954
- Maize exports are down 21% this year. Soybean exports are down 12%
- ADM thinks U.S. grain prices will drop, helping them offset lost revenue from lower exports
While the low waters of the Mississippi River will hurt Iowa farmers, Archer-Daniels-Midland Co. executives said their business will do just fine.
CEO Juan Luciano told analysts on a Tuesday morning call that the multinational agricultural conglomerate will continue to ship less grain from North America through the end of this year, citing drought that has caused shutdowns and arrears along the Mississippi this month. But Luciano said ADM would be able to export additional corn and soybeans through the Gulf Coast early next year to make up for the current shortage.
In the meantime, he told analysts, the company will ship more grain from terminals in South America. Additionally, with prices falling as crops pile up at local silos and terminals amid reduced shipping volume, he predicted that lower prices will help other business lines d ‘ADM, further compensating for their shipping losses.
In particular, he expects a boost for the company’s processing plants, which crush soybeans to produce animal feed and oils. The company, which operates plants in Iowa, including one in Des Moines, also processes corn into ethanol.
“As the beans are not exported, that matters,” Luciano said. “…And that can be a boost for (the crushing business), that you might be able to crush some cheap beans or maybe possibly some cheap corn.”
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Chief Financial Officer Vikram Luther told analysts the price advantage for the company’s crushing business “will more than offset” its problems on the Mississippi.
While facing rising input costs, from fertilizers to chemicals to labor, farmers have benefited from high commodity prices. Corn was trading at $6.86 a bushel on Tuesday, up 74% from the price of $3.94 received two years ago. Soybeans were trading at $13.82 a bushel, down from $9.19 two years ago.
However, these farmers now need to find a place to put the corn and soybeans they are harvesting this fall. A drought, particularly in the upper Ohio River Valley, has choked off tributaries that feed the Mississippi River, an important transportation route for the agricultural economy, including in Iowa, which has dozens of terminals on the River.
For companies shipping corn and soybeans from the Midwest to the Gulf Coast, where about 60% of crop exports leave the country, narrowing shipping channels have limited Mississippi capacity and, in some cases, left water too low to be navigable. According to the National Weather Service, some areas around Memphis had been at all-time lows since the government began tracking in 1954. To dredge some areas deeper, officials closed parts of the river around Hickman, Kentucky, and Stack Island, Mississippi, earlier this month, causing a backlog.
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Shipping costs skyrocketed. Moving a ton of grain south from terminals in St. Louis cost $105.85 a ton as of Oct. 11, about five times the cost a year earlier, although prices have fallen a bit more recently.
Exporters did not move as much grain as they usually do at this time of year. In the past week, shippers moved 3.8 million metric tons of corn this year, down 21% from this point last year, according to a USDA export inspection report. . Shippers handled 7.6 million metric tonnes of soybeans, down 12% from a year ago.
Luciano called the current environment “unprecedented.” He said the company would not be able to export soybeans at the same rate as usual, although he believes the company can hold corn longer.
“You’re going to see that in the first quarter (of 2023),” he said.
Overall, the company on Tuesday reported operating profit of $1.56 billion for the quarter ending Sept. 30, a 56% increase from a year ago. In part, the company’s positive report is due to a downturn last year, when wreckage from Hurricane Ida hurt ADM’s ability to export grain.
The company also said it had benefited from increased demand for ground soybeans to make animal feed and oils like renewable diesel. ADM executives said they earned $90 to $100 per metric ton of soybeans ground last quarter, compared with $50 to $60 in the same period last year.
The company’s ethanol business performed well. Although it didn’t report its specific earnings, ADM pointed to an industry figure that showed manufacturers earned 52 cents per gallon of ethanol sold, up from 23 cents per gallon a year earlier.
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Overall, ADM earned $1.83 per share last quarter, beating analysts’ consensus expectation of $1.43 per share, according to FactSet. Luciana told analysts on Tuesday that he expects the company’s annual financial report to show ADM earned $7 per share for 2022, down from a previous estimate of $6.50 per share.
“The business at this point is banging on all cylinders,” Luciano said.
Luther, the chief financial officer, said the company’s ethanol business would not perform as well in the last three months of the year as it did in the same period last year, when the maker earned an average of $1. $.45 a gallon.
Shares of ADM closed at $91.17 per share on Tuesday afternoon, up 2% for the day. The company’s stock price is up 35% year-to-date.