Agribusiness giant Archer Daniels Midland Co (ADM.N) reported better-than-expected quarterly earnings on Tuesday, helped by higher profit at its oilseeds processing unit.
The Decatur, Illinois-based company, one of the world's top grain traders, said it turned in a "mixed" performance in its fiscal first quarter as oilseeds were strong, margins shrank in its ethanol business and the agricultural services business faced the worst U.S. drought in half a century.
The four "ABCD" companies that dominate the global agricultural business - ADM, Bunge (BG.N), Cargill Inc CARG.ULand Louis Dreyfus Corp LOUDR.UL - are emerging from a period of dismal earnings in which new competitors and volatile markets pressured profits.
But there are signs that the scramble for grains after the drought may be aiding a recovery, as companies with geographically diverse resources can acquire and deliver grain where it is needed.
However, the companies still face hurdles from the drought, which slashed harvests, leaving fewer bushels of corn to process, store and transport.
Looking ahead, ADM said it was bringing online a large soybean-processing plant in Paraguay, as South American farmers are responding to tight market conditions with record plantings.
"Longer-term, we remain optimistic as we see continued growth in global demand for protein meal and other agricultural products," ADM Chief Executive Patricia Woertz said in a statement.
The company reported net earnings of $182 million, or 28 cents per share, in its fiscal first quarter ended on September 30, down from $460 million, or 68 cents per share, a year earlier.
Excluding charges related to an asset impairment and Brazilian income tax, earnings were 45 cents per share. On that basis, analysts on average were expecting 35 cents, according to Thomson Reuters I/B/E/S.
Profit rose in the oilseeds processing unit, helped by improvements in the crushing and origination businesses. Profit fell in the corn processing unit, as negative ethanol margins more than offset improved results from sweeteners and starches.
Refineries for months have lost money on each gallon of ethanol they produce after the deepest drought in five decades sent prices of corn, the main feedstock used in U.S. biofuel production, to a record this summer.
U.S. ethanol production this month fell to the lowest level since the government began releasing weekly data more than two years ago, according to the Energy Information Administration.
Net sales and other operating income slipped 4 percent to $21.81 billion, but topped analysts' average estimate of $20.04 billion.
ADM trades, transports, stores and processes grains, oilseeds and cocoa into products for food, animal feed, industrial and energy uses.
It has the attention of the grain industry after speeding up the global race for grains trading power this month with a $2.8 billion bid for smaller Australian shipper GrainCorp (GNC.AX).
ADM's bid comes at a time of consolidation in the global grains sector amid intense competition to feed fast-developing countries seeking food security. Australia is a key wheat producer with good links to Asia.
Yet, analysts have said ADM's bid, even at a 33 percent premium to GrainCorp's pre-offer price, undervalues the Australian company based on past deals. They expect either a sweetened offer from ADM or a rival bid from another suitor, such as Cargill or Bunge.
Cargill and Bunge have declined to comment on GrainCorp.
GrainCorp has said it is reviewing the offer by ADM, which has a 14.9 percent stake in the firm now. The bid is subject to a number of conditions including exclusivity and due diligence.
ADM also has reached a preliminary agreement to sell its stake in Mexican corn flour processor Gruma (GRUMAB.MX), a deal that analysts say could help fund the acquisition of GrainCorp.
(Reporting by Martinne Geller in New York and Tom Polansek in Chicago; Editing by Alden Bentley and Dale Hudson)