CHICAGO (Reuters) - U.S. agricultural trader Archer Daniels Midland Co said on Tuesday that massive global grain stocks are making it difficult to turn a profit trading grain internationally, sending its shares plummeting by their most in eight years.
The warning highlighted a string of trading woes at ADM, which has shed several key traders and consolidated offices amid a global grains glut.
The Chicago-based agribusiness, one of the world’s top grain traders, reported a higher first-quarter profit but said the outlook for its agricultural services segment appeared weaker than it did at the beginning of the year. That segment’s global trading desk suffered its third quarterly loss in the past five quarters, according to the company.
ADM shares closed down 8.9 percent at $41.67, the biggest percentage loss since May 2009.
The ag services segment, ADM’s largest in terms of revenue, tries to make money buying, selling, storing, shipping and trading grains and oilseeds.
But the company has been “facing a couple of years of very strong headwinds into that business,” ADM Chief Executive Officer Juan Luciano said on a conference call with analysts.
“With ample stocks around the world, there is a very subdued environment for us to make profitable international trades,” he said.
Record global stocks of commodities such as corn, soybeans and wheat, have thinned margins and limited trading opportunities for ADM and rivals such as Bunge Ltd, which reports quarterly earnings on Wednesday.
Together with Cargill Inc and Louis Dreyfus Corp, the companies are collectively known as the ABCD and dominate global grain trading.
ADM opened a global trading desk in Switzerland in 2015 to oversee its supply network. The desk is now trying to reduce the cost per ton of materials traded because of lower margins, Luciano said on the call.
Last week, ADM confirmed it had named a new leader on the desk because Gary Towne, a two-decade company veteran who ran it for the past year, is retiring.
In another major personnel move, ADM has hired a chief risk officer from rival CHS Inc.
The company has also closed its South African trading desk and it shrank operations in Argentina. It will continue to analyze whether other offices make sense, Luciano said, adding that most restructuring was probably finished.
Still, JP Morgan analyst Ann Duignan said in a note that “medium-term risks remain weighted to the downside especially in ag services, which appears to be facing structural headwinds.”
ADM said the profit outlook for its corn and soybean processing segments this year was stronger than earlier thought, offsetting the weaker view for agricultural services.
Brisk U.S. ethanol exports and strong U.S. grain exports following record corn and soybean harvests last autumn helped propel a 47 percent jump in net first-quarter earnings over last year’s weak first quarter, according to the company.
“Agricultural services results were weaker than we expected, despite benefiting from stronger U.S. commodity exports,” said Joe Agnese, equity analyst at CFRA.
Net profit attributable to ADM rose to $339 million, or 59 cents per share, in the quarter ended March 31, from $230 million, or 39 cents a share, a year earlier.
Excluding items, the company earned 60 cents per share, missing the average estimate by 2 cents, according to Thomson Reuters I/B/E/S.
Revenue rose to $14.99 billion from $14.38 billion.
Additional reporting by and Siddharth Cavale in Bangalore; Editing by Bernard Orr and David Gregorio; Editing by David Gregorio and Richard Pullin