Grain merchant ADM expects strong profits as supplies stay tight

Tight global grain supplies are expected to keep profits at crop merchant Archer-Daniels-Midland Co (ADM.N) strong for the rest of the year, executives said on Tuesday, with shipments from Ukraine likely to restart slowly.

Shares climbed 5% to their highest in more than a month after the company reported a 74% rise in second-quarter earnings.

Supply-chain middlemen like ADM have seen robust demand for crops they ship around the world since Russia’s late February invasion of major corn and wheat exporter Ukraine, where ADM operates an export terminal.

Russia, Ukraine, NATO member Turkey and the United Nations signed a deal to unlock Ukrainian grain exports from the Black Sea on Friday.

However, it will take time for large volumes to leave the country, ADM Chief Executive Juan Luciano said on a conference call. Shippers face issues with obtaining fuel, workers, insurance and financing, he said.

“At the beginning, you’re going to see a little bit of a trickle-down of exports,” Luciano said. “It’s going to take a little bit of building confidence that this works before you can put (up) the bigger boats.”

Ukrainian President Volodymyr Zelenskiy has said around $10 billion worth of grain will be available for sale, with roughly 20 million tonnes of last year’s harvest exportable.

Luciano said he hopes to see Ukrainian exports of the 20 million-30 millions tonnes of grain trapped in the country grow over the next two to three months.

“If we don’t have access to those inventories,” he said, “next year we may have an availability issue for food because we will lose part of the crop”.

In the April to June quarter, adjusted operating profit in ADM’s core agricultural services and oilseeds unit increased to $1.12 billion from $570 million in the same period of last year.

Third-quarter results should also rise significantly from last year, Chief Financial Officer Vikram Luthar said.

Net earnings reached $1.24 billion, or $2.18 per share, compared with $712 million, or $1.26 per share, last year. ADM projected full-year earnings per share of $6.50. Full-year 2021 earnings were $4.79, or $5.19 on an adjusted basis.

“Our scenario is for tightness going forward,” Luciano said.