By Michelle Hackman
Several of the largest agribusiness companies are set to
announce quarterly results, providing insight into how whipsawing
grain prices are affecting the farm economy.
The readouts from companies including Archer Daniels Midland
Co., the grain trading and processing giant, and Cargill Inc., the
agriculture and food conglomerate, come after futures prices for
corn, soybeans and other commodity crops started spiking in late
June on fears that heavy rains in the Midwest would crimp harvests.
Futures then dropped sharply in the second half of July as weather
concerns eased and farmers looked headed for a huge harvest for the
third straight year.
Cheaper grain generally benefits companies like ADM that
purchase crops and resell them or process them into everything from
food ingredients like soy lecithin to fuel additives like
corn-based ethanol. Conversely, the higher grain prices last
quarter--along with weak ethanol prices--are expected to have eaten
into ADM's earnings.
Analysts expect ADM on Tuesday to report that earnings in the
three months through June fell 17% to 67 cents a share, while
revenue slid 3% to $20.87 billion.
Investors will also be looking to ADM executives for guidance
about the outlook for the rest of the year, which is expected to be
rosier now that grain prices have subsided and experts are once
more projecting huge grain production this year.
"This is a good environment for an ADM," said Heather Jones,
managing director of food and agribusiness for BB&T. "You want
a lot of volume because you have a fixed-cost asset base."
Cargill, which isn't publicly traded, has so many different
operations that the impact of recent futures swings isn't likely to
be evident in its results. But its executives also may offer
insight into where the agricultural economy is headed. In addition,
executives from Tyson Foods Inc., the largest U.S. meatpacker,
which feeds grains to its livestock, could offer some perspective
on the farm sector when it reports results on Monday.
ADM rival Bunge Ltd. last week reported a 71% decline in
second-quarter earnings, hit in part by economic struggles in
Brazil that hurt Bunge's food-ingredient business.
But Bunge forecast its grain trading and processing operations
this year will generate $1 billion in earnings before taxes and
interest, compared with $890 million last year. This year's harvest
will likely come in "a shade lower" than last year's record U.S.
corn and soybean crops, said Soren Schroder, chief executive of
Bunge. For the firms that deal crops to food companies and
governments and process them into other products, Mr. Schroder
said, "big crops are good."
"Low prices stimulate demand and growth in consumption," he
said.
The June futures surge was driven by concerns that heavy
downpours across the eastern Corn Belt--encompassing parts of
Indiana, Illinois, Iowa and Ohio--would drown out much of the crop.
The late June spike left corn futures prices up 10% for the second
quarter, and soybean futures up 8.5%. But prices for both are now
back down to near their levels at the end of March.
For corn, June's rain was counteracted by good weather in states
like Minnesota and North and South Dakota.
"The western corn belt is going to make up for some of the
losses in the eastern corn belt," said Craig Turner, an analyst for
futures brokerage Daniels Ag Services in Chicago. He said this
realization is what led prices to go back down in July.
Soybeans are typically planted slightly later, in late May and
early June, meaning the rain conflicted more directly with
planting. "We're hearing about farmers who tried to replant two,
three, four times--and each time, it gets drowned out again," said
Scott Irwin, professor of agricultural economics at the University
of Illinois.
Even so, farmers planted the highest number of acres in soybeans
on record this year, according to Terry Reilly, an analyst with
brokerage Futures International LLC. Experts say the exact yield
will now depend largely on good August weather.
Though the low prices bode well for grain traders and
processors, they are likely to hit farmers hard for the third year
in a row, meaning farmers must either sell their crop for slimmer
profits, or even losses, or hold it in storage, hoping to sell
later.
"They're kind of out of luck," Mr. Turner said.
That also leaves suppliers of items like farm tractors and seeds
in a tough spot. DuPont Co. and Syngenta AG, two of the biggest
sellers of seeds and pesticides, both in July reported declines in
earnings for their latest reporting periods. Analysts expect Deere
& Co., the world's largest seller of farm equipment, also to
report a profit drop when it discloses results later in August.
The Week Ahead looks at coming corporate events.
Subscribe to WSJ: http://online.wsj.com?mod=djnwires