World’s Largest Crop Traders Are Finally Rewarding Wall Street

(Bloomberg) -- Wall Street is finally reaping the benefits of investing in the world’s top agricultural commodities traders.

Archer-Daniels-Midland Co.’s shares recently reached a record and Bunge’s touched the highest in more than two years. The backdrop couldn’t be any better. China is scooping up American crops, resulting in surging soybean shipments. That’s lifting profits for companies exporting from ports at the Gulf of Mexico and the Pacific Northwest.

The U.S. shipped the most corn and soybeans on record in the fourth quarter of 2020, data from the U.S. Department of Agriculture show. What’s more, unprecedented corn sales to China should continue to support U.S. exports beyond the first three months of the year, said Thomas Simonitsch, an analyst at JPMorgan Chase & Co. Traders usually favor soybean shipments early in the season before loading boats with corn.

“I would expect ADM and Bunge will have taken advantage of favorable grain merchandising conditions due to strong demand and rising crop prices during the fourth quarter,” said Seth Goldstein, an analyst at Morningstar Inc. in Chicago. “For the 2021 outlook, the environment is still very favorable.”

Shares in Chicago-based ADM, which reports fourth-quarter earnings on Tuesday, reached a record $53.99 last week. Bunge’s are currently at $67.19, hovering near the highest levels since 2018, with the St. Louis trader having last year raised its earnings estimate for the 2020 fiscal year.

Investors will be watching how ADM’s nutrition business performs after management promised that growth of 20% or more would continue. They are also paying attention to the ethanol outlook, as corn prices have rallied on Chinese demand and smaller-than-expected supplies. ADM last year closed two of its three dry ethanol mills, and said it plans to keep them shut until the spring.

“We expect more challenging ethanol margins and rising net corn costs to eat into starches and sweeteners profits during the quarter,” said Ben Bienvenu, an analyst at Stephens Inc., adding that headwinds would continue in the first quarter.

Bunge’s Chief Executive Officer Greg Heckman said in December that he expected earnings of $6.75 a share as the lower end of the range for 2020. That was the high end of a range provided to investors in October. Heckman also said he’d be “really disappointed if we can’t deliver adjusted EPS with a seven in front of it.”

“Bunge remains one of our favorite names in our coverage universe as we see both company specific and macro factors at play for unlocking additional shareholder value,” Bienvenu said.

Still, ADM might be better positioned to profit in the near-term due to its stronger North American footprint, Goldstein said.

Bunge reports earnings on Feb. 10.

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