Amidst all the political noise, you could hardly hear the solid results reported by Archer Daniels Midland (NYSE: ADM) today.
Between ADM's corn and oilseeds processing businesses, operating earnings came in a bit lower than last year. While pricing perked up for many products, biofuels results were a bummer on both sides of the Atlantic. I'm bracing for far uglier news out of Aventine Renewable Energy (NYSE: AVR) and Pacific Ethanol (Nasdaq: PEIX), but ADM didn't come out unscathed by the corn-ethanol crunch.
Fortunately, Archer has another arrow in its quiver. The firm's agricultural services segment was simply smoking in the quarter, with operating profit up eightfold. The ADM trading desk played this volatile market like a Stradivarius violin.
All segments combined for a 54% improvement in operating profits, most of which made it to the bottom line. The result was a big beat, but this agricultural apple was still bruised by the Street. What's causing investors to vote with their feet?
For one, some people may be disappointed with the results we're seeing in corn processing, which is arguably more of a "core" business than ADM's ag-services arm. The company spins this reversal of profit prominence as a demonstration of the firm's balanced global operations, and I tend to agree. When -- not if -- corn price volatility subsides, corn processing will swing back to being a cash cornerstone.
Another concern gets back to politics. We're right in the middle of Farm Bill Follies, in which all sorts of humongous handouts get shoehorned into this $300 billion beast. In the current iteration of the bill, which changes hourly, the ethanol import tariff holding back supply from low-cost Brazilian producers like Cosan (NYSE: CZZ) is being extended, while the blending credit for refiners like Valero Energy (NYSE: VLO) and Tesoro (NYSE: TSO) is being reduced modestly.
With everyone from state governors to corporate leaders like Tyson Foods' (NYSE: TSN) CEO lashing out against ethanol subsidies, the winds are blowing pretty stiffly against ethanol producers at the moment. Still, I don't see this as a reason to run from ADM. A look at future iterations of biofuels should convince you that this alternative source isn't going anywhere, and Archer is well-positioned to profit over the long haul.
