Archer-Daniels-Midland Co. (NYSE: ADM) and Bunge Ltd (NYSE: BG) grain processing companies are expected to see increased profits as the sales of U.S. crops by farmers soar. These farmers, mainly from the Midwest, are clearing out their storage bins to make space for the upcoming fall harvest.
The sell-off includes corn and soybeans harvested in 2023, which they had held onto in hopes of better prices.
Recent favorable weather conditions for crop growth have dampened farmers’ expectations of a price rally. The decision to sell has been further driven by the need for cash to cover immediate expenses, such as loan payments, even though current prices are lower than production costs for some.
Farmers had resisted selling their crops earlier in the year when corn and soybean futures prices dropped to their lowest since 2020, due to abundant supply. However, low prices now have forced farmers like Ron Heck from Perry, Iowa, to sell their crops, sometimes at higher prices than future prices, to local plants such as those owned by POET LLC, the world’s largest ethanol producer.
The increased sales volume is expected to provide cheaper soybeans for ADM and Bunge, where soybeans are processed into oil and animal feed. This may also help them utilize any excess production capacity, which is crucial to maintain their efficiency and profit margins.
Bunge’s CEO, Greg Heckman, acknowledged that slow farmers’ sales had impacted profit margins in Q2 but remained optimistic about improving processing margins. This optimism is reflected in Bunge raising its full-year outlook despite agricultural business earnings in Q2 being significantly lower compared to the previous year.
On the other hand, agricultural businesses like Corteva Inc (NYSE: CTVA) and Syngenta may feel short-term impacts as farmers, facing narrower profits, trim crop chemicals. Corteva recently lowered its annual revenue and operating income forecast.
Despite the challenges, some farmers are still investing in high-yield seeds while being more selective in using fungicides and other chemicals, aiming to maximize their profits in a low crop price market.
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