Andersons Shows That Crop Trading Can Still Be a Money Maker

(Bloomberg) -- There’s still money in old-fashioned crop trading.

That’s the lesson from American crop handler Andersons Inc., which benefited from market volatility and merchandising activities in the second quarter. Adjusted earnings came in at 98 cents a share, 46% higher than the average analyst estimate. Andersons’ shares rose the most in a year.

The Maumee, Ohio-based firm’s upbeat results come as much bigger rivals struggle to make money from their core businesses, turning to everything from meat to food ingredients and alternative proteins. Archer-Daniels-Midland Co. results were in line with expectations mainly due to cost-cutting measures, while Bunge Ltd. beat estimates because of its investment in veggie-burger maker Beyond Meat Inc.

“Extremely wet weather in many of our core grain origination markets benefited our trade group,” Andersons Chief Executive Officer Pat Bowe said in a statement. “We were able to capitalize on merchandising opportunities caused by grain and feed ingredient price volatility.”

Unprecedented wet weather in the U.S. Midwest delayed plantings and sent grain futures rallying. In the physical market, high river levels and more challenging logistics helped push up the premium buyers need to pay on top of futures, the so-called basis. Higher corn and soft red-winter wheat basis helped boost profits for the firm’s trade group.

“The trade group’s adjusted results were strong, as basis appreciation and good merchandising results helped offset weakness in the food and specialty ingredients units,” Bowe said. “However, we’re concerned about the implications of a smaller corn crop on the utilization of our eastern grain assets for the remainder of this year and into 2020.”

Nevertheless, the firm said its operating outlook for the year will be lower than initially thought. Andersons had expected to earn more than the $1.63 a share it posted in 2018, but now given “the ongoing impacts of the unprecedented first-half weather and the world trade difficulties,” operating results “will be down slightly for the full year,” the CEO said on call with analysts Wednesday.

The company’s shares rose as much as 12% Wednesday, the steepest intraday gain in a year. The gain had pared to 2.1% at 12:27 p.m. in New York.

The weather impacted its crop nutrients and ethanol units. Reduced corn plantings eroded crop-input sales, while higher corn prices hurt ethanol margins. Still, the company’s ethanol business turned a profit as competitors including ADM and Green Plains Inc. struggled.

“Margins were extremely weak, but ethanol and corn oil yields continued to improve,” the company said. “The group selectively reduced production in response to the margin environment.”

Higher earnings also come after Andersons acquired Lansing Trade Group in a transaction that closed Jan. 1. The company also announced it had reached an agreement to sell the agronomy assets of its Canadian business to Sylvite Holdings in a sale expected to close in September. Andersons will continue to operate the subsidiary’s grain storage and food processing facilities.

--With assistance from Laura Millan Lombrana.

To contact the reporters on this story: Isis Almeida in Chicago at ialmeida3@bloomberg.net;Mario Parker in Chicago at mparker22@bloomberg.net

To contact the editors responsible for this story: Tina Davis at tinadavis@bloomberg.net, James Attwood

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