What happened

Shares of Archer Daniels Midland (ADM -0.74%) far outperformed the S&P 500 in October, rising 20.5% for the month compared to an 8% increase by the broad market index, according to data compiled by S&P Global Market Intelligence, as grain prices jumped and demand remained strong. 

The company processes various agricultural commodities, including soybeans, corn, and wheat. And since the onset of the pandemic, prices have rocketed higher. Soybean prices are up 75% since March 2020, corn has doubled, and wheat is 58% higher. While commodities are down from their historical highs hit earlier this year, prices began climbing again last month.

Farmer holding ears of corn.

Image source: Getty Images.

So what

Global demand for grains remains robust, particularly after the start of hostilities between Russia and Ukraine that led to a five-month blockade of grain shipments from the war-torn country, which is one of the world's largest grains producers. But Russia has now announced that it will once again allow shipments from Ukraine, so pricing pressure might ease.

ADM reported third-quarter results toward the end of October showing that it had easily surpassed Wall Street expectations. Revenue of $24.7 billion that generated adjusted earnings of $1.86 per share was well ahead of analyst forecasts of $22.3 billion in sales and profits of $1.44 per share. 

With Ukraine and Russia accounting for 30% of the world's wheat exports and 15% of the world's vegetable oil, ADM has benefited from the tighter supplies even though its own input costs, such as that for corn, are higher as well.

Now what

Inflation remains at 40-year highs, and there's nothing to suggest it will change anytime soon, even with the Federal Reserve strategy of unprecedented increases in interest rates.

ADM's shares are up 44% year to date and more than 53% higher than where they were 12 months ago. But despite the increases, the agricultural grains processor still trades at 14 times trailing earnings and next year's estimates, and just a fraction of its sales, indicating there could be additional upside ahead.

Archer Daniels Midland has also raised its dividend for 49 consecutive years, putting it on the cusp of becoming a Dividend King, a stock that has increased its payout for 50 years or more.