ADM says it, farmers may benefit from changes in NAFTA

Date:02-13-2017

Archer Daniels Midland Co. believes it can adjust to President Donald Trump's planned trade-policy changes and even benefit from shifts in relations with big markets such as Mexico, executives from the grain giant said.

ADM has invested to make its processing operations more flexible and could replace some Mexican agricultural products with alternatives made in the U.S. if trade between the countries stalls, ADM Chief Executive Juan Luciano said on Tuesday.

Agricultural commodity traders such as ADM, Cargill Inc., Bunge Ltd. and Louis Dreyfus have much at stake as Mr. Trump reevaluates trade policies affecting some of the industry's biggest markets. Mexico is among the biggest clients for U.S. grain, and imports more American corn and soybean meal than any other country. Mexico is also the dominant market for high-fructose corn syrup exports.

Mr. Trump's calls to reconsider the North American Free Trade Agreement have raised concerns among analysts that Mexico could slow purchases of U.S. agricultural commodities. That could pressure prices for U.S. farmers and force merchants like ADM to find new buyers for some products.

"We always have the ability to rebalance our supply and demand," Mr. Luciano said on a conference call after ADM reported quarterly profits that fell short of analysts' expectations. "We're going to talk with our partners in Mexico and probably are going to modernize Nafta but even if the worst is to happen we still have a very positive 2017 ahead of us."

ADM on Tuesday reported that net income for the fourth quarter fell 41%, more than analysts anticipated, as profits sank at its oilseeds processing division. Mr. Luciano said improved pricing and strong global demand for grain had its corn-processing, grain-trading and flavoring divisions on pace to improve profits in 2017.

Mr. Luciano said ADM could benefit from corporate tax reform, more relaxed regulations and increased infrastructure investment from the Trump administration and a Republican-controlled Congress. Ray Young, ADM's chief financial officer, said the prospect of a lower U.S. corporate tax rate has broadened the range of options ADM is considering for its corn dry mills, which ADM began reviewing last year for a possible sale or other transaction.

ADM could also wind up supplying more products to U.S. food and beverage companies accustomed to buying agricultural commodities from Mexico. Mr. Luciano said about 2 billion pounds of high fructose corn syrup are exported from the U.S. to Mexico annually, while 3 billion pounds of sugar are shipped north from Mexico to the U.S. If that trade were disrupted, he said, ADM could sell more high-fructose corn syrup in the U.S. to replace Mexican sugar.

For the fourth quarter, ADM reported net income of $424 million, or 73 cents a share, compared with a year-earlier profit of $718 million, or $1.19 a share. Excluding asset impairments, restructuring and settlements, among other items, the company said it earned 75 cents a share.

Revenue edged up 0.3% to $16.5 billion. Analysts polled by Thomson Reuters expected 77 cents a share on $16.49 billion in revenue.

Profit from corn processing rose 25% in the fourth quarter and agricultural services profit rose 8.2%. However, oilseeds processing operating profit skidded 45% as it recorded a gain from an asset sale in the year-ago quarter. On an adjusted basis the company said segment profit rose 4.4%.