CHICAGO Dec 2 November was not kind to Archer
Daniels Midland Co.
The Illinois-based grain trader suffered two blows in two
weeks last month when Australia rejected its planned takeover of
GrainCorp Ltd and the Obama administration proposed the
first-ever cuts to requirements for use of U.S. biofuel produced
The GrainCorp decision, announced on Friday by Australia's
treasurer, disappointed ADM executives who had pursued GrainCorp
for 13 months as a central part of their strategy to expand. The
deal would have increased opportunities for exports to
fast-growing areas of Asia and the Middle East.
Analysts said ADM was down, but not out by a long shot. The
company is already benefiting from a record-large U.S. corn
harvest that should support profits well into 2014.
Shares fell 3 percent on Friday but remain up 47 percent
The company, led by Chief Executive Patricia Woertz, faces a
difficult decision in the near term about whether to maintain,
increase, or dump its 20 percent stake in GrainCorp, said Ken
Zaslow, analyst for BMO Capital Markets.
ADM may decide the position is no longer strategically
beneficial, unless executives believe they can successfully
acquire GrainCorp in the future, or form a strategic
partnership, he said.
There are few other takeover targets in Australia as
GrainCorp is the country's last major independent grain handler.
"We wonder if this signals the inability for agribusiness
companies to continue to consolidate, which limits a key
opportunity for them to deploy high cash balances and expand
returns," Zaslow said.
ADM spokeswoman Jackie Anderson declined to comment on
The GrainCorp deal was set to become the latest tie-up in
the rapid consolidation of the global grains sector amid intense
competition to feed countries like China.
ADM is one of the world's largest agricultural trading
houses, competing with rivals Bunge, Cargill
and Louis Dreyfus to buy, sell, transport, store and
Australia is the world's second-largest wheat exporter, with
easy access to key Asian markets. GrainCorp dominates the
country's east coast storage, distribution and marketing of
grains, handling 85 percent of eastern Australia's exports.
Bankers determined over the last 10 days that ADM's
acquisition would likely fail, a source familiar with the matter
told Reuters. ADM representatives had stepped up talks with
Australia's government in an attempt to save the acquisition,
the source said.
In a final public attempt, ADM on Wednesday bolstered its
bid for GrainCorp with additional commitments to Australian
ADM could still use partnerships with GrainCorp to build
relationships with farmers and "go some way to meeting its
objectives in securing a competitive position in accumulating
east coast grain," JP Morgan analyst Stuart Jackson said.
The move by the U.S. Environmental Protection Agency to
slash requirements for the use of biofuels came as less of a
surprise to analysts than the GrainCorp defeat. The proposal,
announced Nov. 15, still stung ADM, one of the nation's largest
producers of corn-based ethanol.
Tom Graves, equity analyst for S&P Capital IQ, recently
downgraded ADM to a "sell" from a "hold" due to the EPA's
"Demand for ethanol could be something of a swing factor of
the results that they report," Graves said about ADM. "It's
potentially perhaps one of the more volatile businesses
depending on prices and levels of demand."
So far, an influx of corn from a record-large U.S. harvest
has pushed corn futures to three-year lows and ethanol margins
to their highest level since late 2009, the last year of a
record corn harvest.
Demand for ethanol could support production, even if
government mandates for usage drop, Woertz said recently.
The massive harvest also increases the amount of grain
available for ADM to handle.
GrainCorp was not "a make-or-break deal" for the company's
future, said Ken Smithmier, an independent grain trader who
formerly worked for ADM.
"They still have the right idea," he said about ADM. "Their
attention is in the right direction."