* Adjusted Q2 EPS $1.06 vs Street view 78 cents
* Corn processing, agricultural services profits jump
* Shares up as much as 7.7 percent (Adds details, analyst quote; updates share price)
By Karl Plume
CHICAGO, Feb 1 Archer Daniels Midland Co (ADM.N) reported higher-than-expected quarterly earnings as the agricultural processor benefited from robust global grain demand and stronger ethanol margins and volumes.
Shares of ADM, the world's largest corn processor and one of the top ethanol producers in the United States, rose as much as 7.7 percent to their highest point in 2-1/2 years.
ADM exported record volumes of U.S. grain as crop shortfalls in several key production areas, including drought-hit Russia and flooded Australia, shifted more demand to the United States.
Meanwhile, the company's favorable futures market positions on corn, which appreciated by 35 percent in the quarter, soothed the sting of surging raw material costs, while rising fuel prices supported ethanol margins.
"The biggest jump was from the corn ethanol side," Morningstar analyst Min Tang-Varner said. Usually ADM has had to take a large inventory-related charge when commodity prices jump, but it partly offset that by taking a larger long position in corn in anticipation of the market's strength, Tang-Varner said.
"ADM has also certainly taken full advantage of these sporadic global grain shortages," she added. "Going forward, those would still be the core strengths of the company."
The company said profit rose in its corn processing and agricultural services segments, more than offsetting lower results in oilseed processing.
For the second quarter ended on Dec. 31, net profit was $732 million, or $1.14 per share, compared with $567 million, or 88 cents per share, a year earlier.
Excluding gains from ADM's acquisition of Golden Peanut, earnings were $1.06 per share, handily beating the analysts' average forecast of 78 cents, according to Thomson Reuters I/B/E/S.
Revenue climbed 32 percent to $20.9 billion.
CORN PROCESSING, AG SERVICES GAIN
Corn processing profit jumped 38 percent to $399 million as ADM's favorable corn hedges, good ethanol margins and increased production of the biofuel eclipsed tighter margins in sweeteners and starches.
The biofuel producer is poised to gain from an ethanol tax credit extension in 2011 and a government ruling last week allowing higher ethanol blends in more U.S. vehicles.
Profit at ADM's agricultural services unit, which buys, sells and ships grains and oilseeds, nearly tripled to $426 million from a year earlier in a strong recovery from the previous quarter.
"After being caught offsides by the Russian wheat drought in (the fiscal first quarter), the Russian crop shortage likely benefited ADM's Ag Services result in (the second quarter)," Morgan Stanley analyst Vincent Andrews said in a note to clients.
Operating profit in oilseed processing declined 8 percent to $325 million on weaker results in Asia and Europe.
Earnings in ADM's other business units, including wheat milling and cocoa processing, rose 19 percent to $212 million.
Shares of Decatur, Illinois-based ADM were up 6.1 percent at $34.70 in afternoon New York Stock Exchange trading after rising to $35.20, their highest level since June 2008. (Reporting by Karl Plume; editing by Maureen Bavdek and John Wallace)