ADM predicts strong recovery in animal nutrition business, boost to grain supply
The increase could bring potential relief in terms of lower commodity prices.
The company predicts a decline in global soybean crush margins, with those moving into a range of $35/Metric Ton (MT) to $60/MT from around $70/MT last year. But it anticipates growth in vegetable oil demand, driven by renewable diesel, along with stronger soybean meal (SBM) demand growth, contributing to a structural margin improvement.
Factors such as improving economics in many Southeast Asian markets, and high beef prices favoring pork and chicken consumption, will support growing demand for SBM, said ADM CEO Juan Luciano, on a conference call with market analysts today.
In addition, the agribusiness group expects mid-single-digit revenue growth and a higher operating income for its nutrition division in 2024 compared to the previous year.
Indeed, Luciano, during that earnings call, said that this year will be marked by strong recovery in ADM's animal nutrition business, as well as in the flavors unit, with additional growth anticipated in pet solutions, but a more challenged performance expected in specialty ingredients. He also flagged a growing innovation pipeline in both its animal and human nutrition divisions.
Financial results
The positive outlook is outlined in a report on the financial results for Q4 and the full year ending December 31, 2023, published today.
During the fourth quarter of 2023, the operating profit for ADM's nutrition business faced challenges, with a negative $10m, marking a 110% decrease compared to the same period the prior year. Unplanned downtime at the Decatur complex also had a negative impact.
The animal nutrition business experienced a 17% decline in operating profit, totaling $15m. For the entire year, the nutrition segment's operating profit was $427m, reflecting a 36% decrease compared to the prior year, with animal nutrition results at $10m, a significant 91% drop from the previous year. “Lower complete feed and premix volumes, and lower amino acids pricing drove lower revenue versus 2022.”
The ag services and oilseeds business reported an operating profit of $954m in Q4 2023, down 20% from the prior year. This decrease was driven by lower margins as global grain and oilseed supplies recovered, putting pressure on commodity price levels. Improved volumes, particularly driven by record export volumes from Brazil, and lower costs partially offset the impact from lower margins. Equity earnings from Wilmar were approximately 59% lower compared to the prior year, with the prior year period also including a $110m legal recovery in ag services, reported the company.
For the full year, the division delivered $4,067m in segment operating profit, an 8% decrease from the record level in 2022.
Probe
ADM also provided an update today in respect of the internal investigation led by the audit committee of its board of directors regarding certain accounting practices and procedures with respect to ADM’s nutrition reporting segment, including as related to certain intersegment sales, which involves the transfer of goods and the related financial accounting between business segments.
The investigation was initially disclosed in January 2024.
“Our strong commitment to compliance and integrity in our financial reporting is evidenced by the diligence and breadth with which the audit committee has conducted its internal investigation. The adjustments related to the company’s reporting segments do not impact our consolidated statement of earnings. Looking ahead, we have developed a remediation plan with respect to the identified material weakness to enhance the reliability of our financial statements with respect to the pricing and reporting of such sales,” said Luciano.
