Archer-Daniels Midland Earnings: Profits Fall on Normalizing Grain Merchandising Conditions

Archer-Daniels Midland’s ADM third-quarter results exemplified our long-term view that the company’s ag services and oilseeds business, which generates the majority of profits, will see lower results as falling crop prices lead to more normalized grain merchandising and oilseed crushing conditions. Having updated our model to incorporate ADM’s third-quarter results, we maintain our $70 per share fair value estimate for ADM.

ADM’s stock was down slightly on the earnings results, despite management’s guidance raise for 2023. With shares trading just above our fair value estimate, we recommend investors wait for a larger pullback and for shares to offer a strong margin of safety before considering an entry point.

In ag services and oilseeds, profits fell over 20% versus the prior year’s quarter, with declines in all four subsegments. As crop prices have fallen in 2023, we think there are likely fewer crop price dislocations leading to less favorable grain merchandising conditions. As we forecast long-term crop prices will fall back to midcycle levels, we expect ADM’s long-term results to decline accordingly.

In nutrition, ADM saw mixed results as growth in flavors and a sequential recovery in animal nutrition profits was offset by a continued decline in plant protein ingredients. Management guided to $600 million in segment profits for 2023. Over the next couple of years, we expect animal nutrition profits will continue to recover, albeit at a slower long-term growth rate, and human nutrition profits will grow as the plant protein ingredients business stabilizes. However, we forecast the nutrition business will see 2027 profits below $1 billion, well below management’s 2025 goal of $1.25-$1.5 billion.