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Commodity costs silver lining for ADM in Q1

By Sarah Hills , 04-Nov-2008

Archer Daniels Midland Company is seeing the benefit of increases in commodity costs as its net sales income increased 65 percent for the first quarter.

ADM’s net sales and other operating income was $21.16bn for the quarter ending September 30, which it said was due principally to “higher average selling prices resulting primarily from year-over-year increases in underlying commodity costs”.

However, at the same time, rising commodity costs are taking their toll as Corn Processing operating profit decreased. This was mainly due to sharply higher net corn and energy costs, although it was partially offset by increased sales volumes and average selling prices for sweeteners and starches, ethanol and lysine.

Meanwhile net corn costs were negatively impacted by mark-to-market losses on corn futures and options used to economically hedge sales obligations.

The company said that overall it saw record quarterly net earnings of $1.05bn for the quarter, up 138 percent from the same period a year ago.

ADM chairman of the board and Chief Executive Officer, Patricia Woertz, said: “This record quarter again demonstrates the ability of our people to utilize our integrated global network and financial strength to capitalize on opportunities and further affirms our business model and strategy.

“Our strong balance sheet and credit rating provide us with the flexibility to access the most cost-efficient credit markets. Our market acumen coupled with this financial strength enables us to recognize and promptly act upon opportunities when they arise.”

The company has also benefited from a lower tax rate and a change in inventory valuations.

 

Segment results

Segment operating profit for the quarter increased 48 percent to $ 1.18bn from $ 797m last year.

Under this category, Corn Processing operating profit decreased to $118 m from $253m last year.

Sweeteners and Starches operating profit decreased $102m to $65m and Bioproducts operating profit decreased $33m to $53m. Both these decreases were said to be due principally to sharply higher net corn and energy costs, although this was partially offset by higher average selling prices and increased sales volumes.

While Corn Processing saw a decrease, ADM’s Oilseeds Processing operating profit increased on improved global crushing and origination margins, improved margins for value-added products among other factos.

Agricultural Services operating profit increased mainly due to improved margins resulting from “opportunities created by market volatility, global shifts in sources of grain supplies and the delayed US harvest”.

Other operating profit increases were put down to improved cocoa processing volumes and margins and improved wheat processing margins.

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