A daily grind is the secret to Archer-Daniels-Midland's (ADM) success. It's one of the world's largest processors of agricultural commodities. Its main products, which represent roughly 10% of sales, are soybeans and soybean meal, and corn. Corn is converted into sweeteners, starches, and bio-products, among many. ADM produces wheat flour for bakeries; cocoa and chocolate for confectioners; animal-feed ingredients for farmers; and malt for brewers. Oilseeds are processed into vegetable oils and protein meals. ADM has a US grain elevator and global transportation network that buys, stores, transports, and resells feed commodities for the ag processing industry. Overseas demand generates nearly half of all sales.
ADM's businesses -- agricultural services (the largest in terms of sales), oilseeds processing, and corn processing -- can be best understood in the light of changing agricultural commodity prices. Commodity prices impact sales and the cost of products sold. And, in ADM's corn and other food and feed processing operations, commodity prices raise (or lower) the cost of raw materials. Energy prices, weather events, crop health, as well as government programs and shifts in population, can also influence ADM's performance.
In 2011 earnings increased more than 5% over the prior year on a 30% jump in net sales. Results, particularly sales of agricultural services (soaring more than 40%), were driven by higher prices for certain agricultural commodities, in strong demand worldwide. Sales from ADM's oilseeds processing business grew more than 20%, attributable to higher selling prices for vegetable oils and soybeans, along with biodiesel and protein meal. Similarly, corn processing sales climbed approximately 25% on rising sales volumes of ethanol and other corn products. Cocoa and cocoa products and wheat flour enjoyed higher average selling prices, too. Offsetting the gains, the year-over-year cost of products sold climbed by more than 30%.
ADM navigates the swings in commodity prices, in part, by investing in growth through construction of new plants and expansion, or acquisition, of existing ones. Funding is also dedicated to transportation equipment. The company has earmarked $2 billion for such capital expenditures in fiscal 2012. Reflecting its growth strategy, about one half of ADM's investment is targeted outside the US. To this end, ADM in late 2012 upped its stake in GrainCorp Limited from 4.9% to about 20% as it looks to grow its share in the services and oilseeds business, particularly in the Australian market that caters to Asia and the Middle East. Furthermore, ADM is seeking to buy all of GrainCorp. for A$12.20 ($12.26) per share. A large share of the investment made in the US will also cater to export markets, where population growth is anticipated to be higher. ADM currently owns or leases more than 260 processing plants and some 390 procurement facilities, about one-third of which operate on international soil.
To serve its diverse customer base, ADM has briskly expanded its selection of products by introducing a slew of value-added items. Among them, ADM subsidiary ADM Alliance Nutrition broadened its line of liquid animal feed in mid-2012 by acquiring Liquid Feed Commodities. ADM looks to the Nebraska-based manufacturer to boost the use of liquid supplements along with AMD co-products, which help to maximize the health and productivity of animals, among Midwest cattle producers. The deal follows ADM Alliance Nutrition's entry into the liquid feed market the previous year with the purchase of Cattleman's Choice Loomix, the leading producer of liquid animal feed supplements.
Elsewhere, ADM partners with Burcon Technologies to exclusively make, market, and sell Clarisoy, a transparent soy protein used by beverage manufacturers. For retail and foodservice markets, ADM invests in R&D of custom fats and oils, some of which are low in trans-fats, and vegetable oil products with reduced saturated fats. In a move spot-on with consumer concerns about the safety of food packaging and infant product manufacturing, the company introduced isosorbide under its Evolution Chemicals line in 2010. Isosorbide is a corn-based industrial ingredient and alternative to the controversial petroleum-based chemical Bisphenol A, a component in the manufacture of plastic bottles for water, soda, and baby use.
ADM also invests in numerous joint ventures that combine its strengths with those of other companies. Already a top producer of corn-based ethanol, it has an alliance with ConocoPhillips to develop and commercialize the process of converting biomass from crops, wood, and switchgrass into biocrude. Biocrude, a nonfossil renewable feedstock, can be processed into fuel, including substitutes for gasoline used in automobiles.
Most of ADM's joint ventures are in the oilseeds processing business. Its 50-50 joint venture with Princes, called Edible Oils Limited, makes and sells edible oils in the UK. Stratas Foods is another 50-50 joint venture (with Associated British Foods) that sells edible oils in North America. In an instance where solid returns were generated, ADM in early 2011 bought out its 50-50 joint venture with Swiss international trading company Alimenta SA. The move gave ADM 100% control of Golden Peanut Company, the largest US handler, processor, and exporter of peanuts and peanut-derived ingredients. It is also the #1 peanut sheller and peanut oil refiner in the US.
In addition to agricultural services and commodities, ADM owns about 20% of Mexico's Gruma, the world's largest producer of corn flour and corn tortillas. ADM has a love for chocolate, too. It sources, transports, and processes cocoa beans and produces cocoa liquor, cocoa butter, cocoa powder, chocolate, and various compounds, for the food processing industry. – less