CHICAGO (Reuters) - Shares of Archer Daniels Midland Co (ADM.N) tumbled more than 8 percent on Tuesday after the agribusiness group reported a lower third-quarter profit due to weak ethanol margins and slumping North American grain exports.
The decrease in profit, below Wall Street’s expectations, came despite rising global demand for food and ample global supplies of corn, soybeans and other crops following massive harvests in North and South America and other key production areas around the globe.
Chicago-based ADM, one of the world’s top producers of corn-based ethanol, said earnings in its corn processing unit tumbled 62 percent due to thin margins and high inventories of the biofuel.
Oilseeds processing profit fell 21 percent in the quarter while earnings at its agricultural services, ADM’s largest segment in terms of revenue, dipped 3 percent.
The core businesses of ADM and its rivals Bunge Ltd (BG.N) and Cargill Inc [CARG.UL] buy, sell, transport, store and process grains and oilseeds. Margins are typically thin, but volumes are massive when crop supplies are good and prices are low, as they currently are.
Lighter-than-normal grain sales by U.S. farmers have hurt ADM this season, Chief Executive Juan Luciano said. To date, U.S. growers have sold only about 30 percent of the latest corn crop and 35 percent of their soybean crop, compared with 45 and 60 percent normally, he said.
Meanwhile, a strong U.S. dollar made crop exports from the United States less competitive on the world market and also raised the cost of the dollar-denominated raw materials that ADM buys and processes in other countries. A weak Brazilian real triggered active farmer selling in that country, flooding the global market with cheaper supplies.
“ADM shares are weak, reflecting the third quarter earnings miss as well as anticipation that fourth-quarter results will continue to be hampered by slow farmer selling, weak export demand for U.S. grain and lackluster ethanol profitability,” said Farha Aslam, an analyst with Stephens Inc.
ADM said that net third-quarter profit tumbled to $252 million, or 41 cents per share, from $747 million, or $1.14 per share, a year earlier.
Excluding one-time items, earnings fell to 60 cents per share from 86 cents a year ago. Analysts expected 70 cents per share, according to Thomson Reuters I/B/E/S.
Shares of ADM were down 8.4 percent at $42.39 on Tuesday and are off nearly 19 percent from the beginning of the year.
Editing by Jeffrey Benkoe and Bill Rigby