Grain firms start to get drought out of their systems

Grain firms start to get drought out of their systems

Record 2012 drought may be over, but lingering effects showed up on several financial reports in grain sector.

THE adage that droughts have long tails held true for many grain-sector heavyweights in 2013, with their earnings hindered by many effects associated with the most widespread U.S. drought in more than 50 years.

"Fiscal 2013 was a challenging year for agriculture," CHS president and chief executive officer Carl Casale said. "The strength of our diverse business portfolio, along with a strong domestic and global footprint, combined to deliver economic value for (our owners)."

Strong earnings from the CHS energy segment offset much of the lackluster performance of its agriculture endeavors. The nation's largest farmer-owned cooperative announced its second-largest net income in history, with $992.4 million for the fiscal year ending Aug. 31 representing a 21% decline from the record $1.26 billion set in fiscal 2012.

Fiscal year earnings for its energy segment were the second best in company history but were down 21% from 2012 due to reduced margins in its refinery and propane businesses.

The 2012 drought, meanwhile, resulted in reduced export margins for the CHS grain marketing segment and led to a 39% drop in earnings for its agriculture segment. The company's crop nutrients, local retail operations, processing and food ingredients businesses all reported lower earnings compared with 2012.

Margins in many segments were pressured by record-high prices in the grain and oilseed sector — one of the most visible effects of the drought. CHS saw a third consecutive year of record revenues at $44.5 billion, but the 10% top-line increase still yielded a 21% drop in net earnings.

Archer Daniels Midland Co. (ADM) told a similar story in its third-quarter results, reporting net earnings of $476 million and segment operating profit that was down 6% compared with the same quarter last year.

"Our team delivered solid operating results overall, despite the lingering effects of the 2012 drought," ADM chair and CEO Patricia Woertz said. "Oilseeds performed well, particularly in North and South America; corn benefited from improved ethanol margins, and Agricultural Services managed effectively though the transition to the new crop."

Woertz said with record global crop supplies refilling the pipeline this harvest, the company should be well positioned to reap the rewards of strong demand around the world.

Profits for the ADM Oilseeds Processing segment increased $25 million during the quarter ending Sept. 30, with the segment transitioning from tight old-crop supplies to somewhat more plentiful new-crop bushels. As with CHS, however, ADM's Agricultural Services segment saw a $122 million drop in profits due to low U.S. exports and weak international merchandising performance.

Crushing and origination profits fell $14 million compared with last year, although the company's refining and biodiesel operations yielded a $57 million gain over the prior year period due to improved biodiesel results and record profits from specialty proteins.

ADM is on the verge of closing its largest acquisition in history, with its purchase of Australia's GrainCorp expected to close sometime in the first quarter of 2014.

Reports from Australian media speculated in recent days, however, that Prime Minister Tony Abbott will maneuver to scuttle the deal, which was a key focus of ADM's leadership in 2013.

On a more regional scale, Ohio-based grain and biofuel concern The Andersons reported 2% profit growth in the third quarter, at $17.2 million for the period ending Sept. 30. The company said revenues for the quarter were up slightly, to $1.2 billion.

"We had a record third quarter due to the exceptional performance seen in our Ethanol and Rail groups," CEO Mike Anderson said. "Our expectation for the last quarter of the year is that it will be comparable to the results seen in 2010 and 2011; 2012 results were tempered by drought, which, we are happy to say, is now behind us."

Despite falling grain prices, Anderson said the company's Grain Group saw a sharp increase in revenue due to an increase in bushels sold as farmers reaped a record corn crop. With ethanol margins improving significantly, the company's bottom line looked much better than a year ago, when the ethanol business was very difficult.

In Canada, specialty crop, pulse and canola processer Legumex Walker reported that revenues increase 75% for its third quarter and that gross profits were up 81% to $5.8 million.

The company's new Pacific Coast Canola processing facility "turned a major corner" toward generating positive cash flow for the fledgling company, and with tonnage and margins improving in its other operations, the company is optimistic about the outlook moving forward.

Volume:85 Issue:47

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