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ADM sees years of tight global crop supplies, strong 2022 profit outlook

Global supplies of key crop staples will remain tight for at least two years after harvest shortfalls in some countries and shipping disruptions triggered by Russia’s invasion of Ukraine, Archer-Daniels-Midland Co said.

Demand will likely outpace supplies until at least 2024, resulting in high crop prices that will draw grain stocks out of storage and encourage South American farmers to plant more, the grains merchant said after posting a better-than-expected quarterly profit.

“We are already tight from a supply-demand perspective and we will get tighter as demand continues to grow,” ADM Chief Executive Juan Luciano said during a conference call with analysts.

“We need two very good seasons of crops in North America and South America to … become more comfortable in those supply-demand imbalances.”

The company on Tuesday said strong crop processing margins and higher demand from importers concerned about surging global food inflation propelled its first-quarter earnings beat, adding that 2022 profit would top its record performance last year.

GRAPHIC: Grains firms see higher demand since the Ukraine crisis https://fingfx.thomsonreuters.com/gfx/buzz/zgvomlnblvd/ADM%20BG%20results.PNG

ADM’s results highlighted how global grains merchants have weathered surging inflation and supply chain disruptions caused by the war. Ukraine and Russia supply nearly a third of world wheat exports, a fifth of globally traded corn and 80% of sunflower oil.

The war exacerbated an already tightly supplied market after drought slashed Canada’s harvest last year and poor weather curbed grain and soy production in South America.

Indonesia banning exports of some palm oil starting April 28 further tightened the global outlook for vegetable oils, as Ukraine is a top exporter of sunflower oil. Luciano said some customers were seeking replacement oils in response to the war and Indonesia’s export curbs.

In a more positive development for global food supplies, Luciano said U.S. fertilizer supplies were sufficient for the 2022 crop, though prices were high. He said some shortages were possible in Brazil for the next planting season.

Grain supply chain middlemen like ADM and rivals Bunge Ltd, Cargill Inc and Louis Dreyfus Co, known as the ABCDs of global grain, tend to thrive when crises such as droughts or war trigger shortages in parts of the world.

Net earnings attributable to ADM jumped 53% to $1.05 billion, or $1.86 per share, in the quarter ended March 31, from a year ago.

Excluding items, the company earned $1.90 per share, beating expectations of $1.41, as per Refinitiv data.
Source: Reuters (Reporting by Ruhi Soni in Bengaluru and Karl Plume in Chicago; Editing by Maju Samuel, Bernadette Baum and Bernard Orr)

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