July 30, 2007

Lower 4Q profit for Archer Daniels Midland seen due to high corn costs

Archer Daniels Midland's fourth quarter profit is "likely to show significant year-over-year declines" due to high corn prices, according to Citi Investment Research. 

The firm's analyst David Driscoll said rather than focusing on the fourth-quarter results, investors may more likely to look toward future quarters when corn prices are likely to fall due to the increased number of acres planted by farmers this year.

The high demand for the fuel has pushed corn prices up over US$4 per barrel in the past year due to ethanol and the company has been hit hard by the grain's soaring costs.

The previous USDA report of bigger corn acreage in the US has led to lower corn prices, which could help the company's earnings in the 2008 fiscal year. However, price of soybeans-- another important crop that Archer Daniels Midland use in its oilseed processing area -- has also ascended since farmers have planted fewer acres to make room for more profitable corn.

The June plantings report showed a 15 percent decline in the number of soybean acres planted.

The June USDA report, he said, "suggests the potential for a robust corn crop, which is driving corn prices down and supporting our belief that fiscal year 2008 earnings at Archer Daniels Midland are in store for significant improvements on the back of reduced corn costs."