Archer Daniels Midland Company (ADM): Get 3.1% Dividend Yield While Waiting For Commodity Prices to Recover

However, I see healthy growth prospects for the company. According to ADM, it would remain on track to achieve its 15% to 20% operating profit growth target for 2016.

In the second quarter, it expects some modest underlying growth on a year-over-year basis, and it will continue to see some additional startup costs. The company’s growth will be more concentrated in the second half based upon the pattern of new business and synergy realizations.

In my view, the company’s advance in its strategic plan – that has led to a substantial improvement in returns – is very encouraging.

During the quarter, it acquired a controlling stake in Harvest Innovations, enhancing ADM’s plant protein, gluten-free ingredient portfolio.

Also, ADM announced the purchase of a corn wet mill in Morocco that will further expand its global sweeteners footprint and opened new, state-of-the-art flavor creation, application and customer innovation center in Cranbury, New Jersey.

In addition, as part of its ongoing portfolio management efforts, the company reached an agreement to sell its Brazilian sugarcane ethanol operations. Moreover, it achieved almost $50 million of run-rate savings in the quarter and remains on track to meet its $275 million target by the end of the calendar year.

Ethanol

Archer Daniels Midland Company (NYSE:ADM) is the world’s largest corn processor, and it produces about 11% of U.S. ethanol. In the recent quarter ethanol margins continued to be impacted by high industry production levels that caused inventories to build throughout the quarter.

However, in April, ADM saw inventories come down in the month as domestic and export demand remains solid, and production levels slowed. This is due in part to seasonal maintenance programs of many plants in the industry.

To estimate the current quarter ethanol margins compared to the previous quarter, I have calculated the average price of corn and ethanol for the current and the prior quarter. The average corn price increased about 1.6% thus far in the current quarter compared to the previous one, and the average price of ethanol rose about 6.6%. Since corn price increased less than ethanol price, ethanol production margin might increase in the current quarter.

 

* thus far second quarter

Corn, July 2016 Leading Contract Daily Chart

Ethanol, June 2016 Leading Contract Daily Chart

Charts: TradeStation Group, Inc.