Commodities: Archer Daniels Midland Profit

Commodity company Archer Daniel's Midland doubles net income


At a glance it looks like Archer Daniels Midland (ADM) had a great quarter, as net income more than doubled. In reality, the company gains were primarily from lower tax rates and change in accounting concerning inventory valuations.

A couple other factors in the rise in profits were increased sales prices as well as currency exchange-rates. Because Archer Daniels has less global exposure, they were able to perform better than their chief competitor Bunge Ltd (BG), which was down 50 percent from Wall Street expectations.

Even so, for now the company will enjoy a brief surge in stock price based on exceeding expectations of 69 cents a share, excluding items. Net income surged to $1.63 a share for the quarter ending September 30, or $1.05 billion. Last year in the same period net income was $441 millon, or 68 cents a share.

Revenue for the quarter grew by 65 percent to $21.16 billion, in spite of overall volume being about the same. Most of that was due to higher commodity costs which drove the prices up. That and hitting the currency exchange-rates at the right time drove the revenue increase.

Particularly strong in the quarter was the agricultural services and oilseed processing divisions. That was partly offset by the surging costs of energy and corn during the quarter.

Operational margins grew from 7.2 percent to 8.8 percent.

Much of ADM's success stems from their corn-processing facilities, whereby they're able to take the feedstock and put into whatever product has the best profits at any given time. That and their ability to manage the currency-exchange rates well has helped them immensely.

Still, the change in inventory valuation has helped them look much stronger than they really were during the quarter, and that needs to be strongly taken into consideration when looking at its seemingly overwhelming positive profits performance.

Looking ahead, commodity based companies will rebound as demand for resources rises again. Archer Midland Daniels will rise with them.

Commodities: Ethanol VeraSun Energy Bankruptcy

Ethanol as commodity continues to lose luster as VeraSun files for bankruptcy

The hugely misguided effort by the U.S. government to artificially produce an ethanol industry in America continues to flounder, with the latest casualty in the debacle being VeraSun Energy Corp., which has filed for Chapter 11 bankruptcy protection.

VeraSun Energy, which accounts for close to 13 percent of the ethanol capacity in the country, is attempting to get $190 million to meet expenses, including payroll. Other needs to be met are buying of corn, leases, natural gas, among a number of others.

Standard & Poor's also lowered the long-term credit rating of the company on its senior secured notes - due in 2012 - from "B-" to "D." They're worth about $210 million. VeraSun has about $450 million in unsecured notes - due in 2017 - lowered from "CCC" to "D."

With profit margins of about zero, almost no credit markets, and terrible, speculative bets on commodities, the company has no chance at operating in its current condition. Another major factor was its irresponsible debt load, which also make it impossible to operate at a profit.

If oil prices stay low for any significant period of time, it's expected that many of the players in the dubious industry will fail as well.

While VeraSun is expected to continue operating at full capacity, thus not helping its competitors, who may have had the opportunity to take over the market share of the company, it has a huge uphill battle, as its changes of suriving, let alone turning a profit remain slim to none.

It remains to be seen if some of the larger competitors of VeraSun will be able to operate at similar losses. Some of the bigger companies are the privately held Poet LLC, along with agribusiness behemoth Archer Daniels Midland.

We should just put this ethanol nonsense to a rest in the U.S., and start drilling for more proven oil reserves in the U.S. and on its coasts, while looking to develop options that have real chances of being successful alternatives to and complements to traditional energy sources.

What a waste of time and money the pursuit of ethanol has been in the U.S.

Update: Judge approves VeraSun's rare bankruptcy financing

End the ethanol subsidy now, or we'll see more ethanol companies collapse, as it's an artificial, propped up commodity, not a real one.