CHICAGO/BANGALORE (Reuters) - The coronavirus pandemic is fueling demand for cardboard boxes - a boon for global food company Archer Daniels Midland Co’s (ADM.N) industrial starches business - as consumers rush to order goods online amid widespread shutdowns, company executives said onThursday.
The starches, made from corn or wheat, are used as an adhesive in making corrugated cardboard.
Demand for ethanol biofuel the company produces has plummeted along with gasoline use, meanwhile, as the pandemic wrecks havoc on the global economy. But biodiesel demand was strong in North America as big-rig trucks raced to haul goods to warehouses as airlines grounded planes.
“These are extraordinary times,” ADM Chief Executive Officer Juan Luciano said on an analyst call.
ADM’s first-quarter results on Wednesday beat analysts’ expectations even as revenue slipped, offering the first look at how the pandemic is affecting the world’s largest grain traders.
Global food supply chains are breaking, U.S. meat plants are shuttering, farmers are forced to destroy crops and animals, and thousands of U.S. meat and food-processing workers have been infected with the coronavirus.
While Luciano said the pandemic had not significantly interrupted ADM’s operations, what the company has faced in recent weeks and months underscores how such disruptions are reshaping the global supply chain.
Take corn oil, which is a byproduct of ethanol production. As U.S. ethanol production slowed, so did corn oil supply, Chief Financial Officer Ray Young said. Yet prices rose as demand surged from food manufacturers trying to meet consumer demand for fried snacks such as chips.
Demand for soybean oil, used in food service, weakened, however.
ADM had its first coronavirus-related fatality among employees two weeks ago, Luciano said. The pandemic also prompted ADM to cut capital spending plans for 2020, putting it closer to $800 million and lower than initial guidance, Young said.
While ADM executives are encouraged by agricultural purchases made by China so far, the company does expect its second-quarter results from its Ag Services and Oilseeds unit - its largest business in terms of revenue - to be lower sequentially.
Rival Bunge Ltd is scheduled to report its first quarter results on May 6. Last month, rival commodities trader Cargill Inc [CARG.UL], which is privately held, canceled its fiscal-third-quarter earnings release due to the pandemic.
ADM executives said they are already seeing consumer trends shifting in Asia as cities there reopen, restaurants resume business and people return to work.
While Asia’s food service sector has not fully rebounded, “we have started to see, over the last two weeks, that things are becoming a little bit better” as businesses begin to reopen, Luciano said.
Reporting By P.J. Huffstutter in Chicago and Nishara Karuvalli Pathikkal in Bangalore; Editing by Caroline Stauffer and Tom Brown