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Published April 30, 2008, 07:00 AM

ADM 3Q profit jumps 42 pct in volatile commodities markets

CHAMPAIGN, Ill. (AP) - Archer Daniels Midland Co. cashed in on volatile prices and heavy demand for the corn, soybeans and wheat it processes to generate a 42 percent increase in third-quarter profits.

CHAMPAIGN, Ill. (AP) - Archer Daniels Midland Co. cashed in on volatile prices and heavy demand for the corn, soybeans and wheat it processes to generate a 42 percent increase in third-quarter profits.

Though ADM easily beat Wall Street expectations, investors Tuesday seemed to doubt that ADM could sustain the same pace amid such fickle markets, and company shares dropped sharply.

Profits grew to $517 million, or 80 cents per share, compared with a year-ago profit of $363 million, or 56 cents per share.

Revenue surged more than 64 percent to $18.71 billion, from $11.38 billion.

Analysts surveyed by Thomson Financial expected earnings of 70 cents per share on revenue of $13.45 billion.

Results were driven by an almost sevenfold increase in profits at ADM's Agricultural Services division, from $46 million to $366 million.

The division includes the company's grain transportation and handling services, which continues to move last year's large corn crop and other commodities in high demand. The division also includes a large grain-trading operation that tries to profit from shifts in commodity prices and buffers ADM against price spikes.

"The volatility this quarter was unprecedented; it was higher than we had ever seen before in any crop," Chief Executive Officer Patricia Woertz said during a conference call with Wall Street analysts.

Corn prices set a new record high above $6 a bushel during the quarter.

Woertz defended the production of biofuels, which have come under increasing scrutiny as the cause for volatile commodities and food shortages from the Caribbean to Africa and Asia.

"Biofuels are really a real solution to real problems," Woertz said. "Retreat from biofuels is wrong - it's dangerous, it's a mistake. It won't fill anybody's stomach and won't fill any gas tanks."

ADM is the country's second-largest producer of ethanol, the largely corn-based fuel additive with plenty of critics, including ADM customers. Food processors say the vast amount of corn used to produce ethanol is driving up the cost to make feed for livestock.

Just under a quarter of last year's U.S. corn crop was used to make ethanol, according to the industry trade group the National Corn Growers Association, up from 18 percent in 2006.

Profit in the company's corn-processing business, including its ethanol production, fell 31.5 percent to $172 million. ADM blamed high prices for corn and rising prices for the fuel used in production.

"Results were very clearly negatively impacted by much higher corn costs, which were only partially offset by higher selling prices," Citigroup analyst David Driscoll wrote in a note to investors.

ADM predicted Tuesday that ethanol sales and prices should improve through this fall, when more U.S. ethanol production capacity comes on line. Ethanol prices are currently low compared with gasoline prices, which ADM Executive vice President John Rice said should encourage fuel blenders to put more ethanol in the gasoline they sell.

Some analysts, like Citigroup's Driscoll, praised Decatur, Ill.-based ADM for its ability to capitalize on spikes and drops in commodity prices.

But they also questioned whether the company could maintain anything like the third-quarter results in agricultural services, which ADM itself called extraordinary.

"What it always leaves everybody wondering is, what happens next?" Driscoll asked during the conference call.

Woertz would only say that, while she expects improved production of some key crops in Europe and South America, volatility seems to be the commodity market rule right now.

"Every time some part of the global crop is normal, something else seems to have a blip," she said.

ADM shares dropped 3.9 percent to close at $45.58 Tuesday.