Low US corn stocks have hurt Archer Daniels Midland as the agribusiness lost money on ethanol production and struggled to export the most widely used feed grain.
Net profit fell 25 per cent to $284m, or 43 cents per share, in its fourth quarter ended June 30. This compares with $381m or 58 cents per share a year earlier.
ADM is one of the two largest US refiners of corn-based ethanol. The company lost money producing the fuel additive as stocks are high, petrol demand is weak and the amount of corn left over from last year’s harvest has dwindled.
The division that includes ethanol plants reported a $61m operating loss in the quarter, down from a $111m operating profit one year earlier. ADM recently closed one ethanol plant.
“Industry supply exceeded demand,” said Juan Luciano, chief operating officer. “Margins continue to be extremely volatile because as the industry is trying to reduce inventories, corn has been moving at the same time.”
The weak results in ethanol mirror broader strains in the biofuels industry. Valero Energy, an oil refiner and major ethanol producer, also reported weak ethanol results on Tuesday due to excess inventories.
Ethanol refiners are struggling as US corn prices have surged to records after a modest harvest last year and a drought this year which threatens to dramatically reduce the current crop. Meat producers have petitioned the Obama administration to waive a mandate requiring fuel companies to blend billions of gallons of corn ethanol with petrol this year or offset some blending obligations with government-authorised credits.
Patricia Woertz, ADM’s chief executive, acknowledged the drought has led to discussion “about who experiences the pain associated with higher prices”.
ADM’s agricultural services division, which buys, stores, transports and sells grains around the world, reported that operating profit fell 64 per cent to $123m as tight US corn stocks curbed export volumes.
As the drought damages the US crop, ADM said it is investing in a port in Brazil, which in the past year enjoyed its largest corn crop ever.
“We have implemented a set of contingency plans just to make sure we match our cost position with maybe reduced volume for the year,” Mr Luciano said.
Shares in ADM fell 4.7 per cent to $26.19 in early New York trading.