How Volatile Grain Prices are Affecting ADM, Cargill

Many global agribusiness companies will be releasing their quarterly results this week – information that will lend a snapshot of how volatile grain prices are affecting the farm economy as a whole.

In June futures prices for corn, soybeans and other commodities began spiking due to concerns that heavy rains in the Midwest including Indiana, Illinois, Iowa, and Ohio would cut into harvests. But then in the second half of July, prices fell significantly as weather improved and farmers were beginning to envision a third straight year of bumper crops.

“The western corn belt is going to make up for some of the losses in the eastern corn belt,” said Craig Turner, an analyst for futures brokerage Daniels Ag Services in Chicago. He said this realization is what led prices to go back down in July.

For Archer Daniels Midland (ADM) which buys grain to resell or process into higher value products such as food ingredients or ethanol, cheaper grain prices are a boon. However, higher grain prices last quarter combined with low ethanol prices are expected to dent the group’s earnings, which analysts expect to fall by 17% to 0.67 cents per share, as revenue is expected to fall by 3% to $20.87 billion.

Cargill’s business is more diversified and also not publicly traded, meaning its quarterly results will be less indicative of the impact of commodity price swings, but the company’s executives may provide insight into the direction of the general agricultural economy.

Although the lower grain prices will benefit agribusinesses and food companies, such as ADM, Cargill, and Tyson, they will be difficult for farmers who have been hit hard for three years in a row. The lower grain prices will also be daunting for suppliers of equipment and inputs such as tractor and seed companies. Deere & Company, the largest farm equipment seller in the world, is expected to reveal a drop in profits when it discloses its results in August, and both Syngenta and DuPont posted declines in earnings for their latest earnings periods in their July reports.