Difficulties in China's soybean market reduce ADM profits

Related tags Adm Soybean Archer daniels midland

US agribusiness Archer Daniels Midland (ADM), one of the world's
largest processors of soybeans, saw double-digit sales growth for
the year but overall profits were hit by an unpredictable
agribusiness market.

Sales for the Decatur, Illinois-based firm leapt 18 percent for the year to $36.1 billion, but the agricultural processor saw fourth quarter results slip to a loss of $103 million. "Extreme volatility and difficult business conditions for global agribusiness,"​ were partly to blame for this, said the group in a statement announcing its year-end results.

ADM said the oilseed processing business sustained a $15 million operating loss after Chinese soybean producers who had over-purchased soybeans defaulted on agreements to buy more when soymeal demand in China collapsed, the result of price rationing and avian flu. The company said that caused a dramatic drop in soybean prices, which also prompted a loss in its South American operations.

ADM has become more vulnerable to the Chinese business, as some 30 per cent of its soybean crushing capacity is now located in that developing market through a joint venture.

The group's profits were also diminished by a recent payout of millions of dollars to leading food and beverage manufacturers to settle a lawsuit linked to the popular sweetener high fructose corn syrup.

ADM paid a $400 million (€333m) settlement in the anti-trust case that claimed the firm had conspired to fix the price of fructose.

Ignited in the early 1990s the settlement has its roots in a law case filed by over 20 plaintiffs, including soft drink giants Coca-Cola and PepsiCo, which accused ADM of linking up with other manufacturers to fix prices of the sugar substitute.

"In light of the potential exposure inherent in litigation, the board of directors concluded that it was in the best interests of the company to dispose of this matter,"​ G. Allen Andreas, chairman of ADM, said last month.

The class-action lawsuit filed in 1995 alleged that ADM​'s actions cost them $1.6 billion. The case had been scheduled for a September jury trial and ADM could have faced damages three times this amount at nearly $5 billion, as jurors could have tripled any award if they found the company guilty.

In addition to the payout ($252 million after tax), CEO G. Allen Andreas said the legal settlement took care of the company's remaining significant litigation exposures. Net earnings for the fiscal year came in at $494.7 million, or 76 cents a share, compared with $451.1 million, or 70 cents a share, a year earlier.

ADM is one of the world's largest processors of soybeans, corn, wheat and cocoa. The ingredients side of the business supplies an extensive product range, to include vegetable oils and fats, lecithins, xanthan gum and acidulants, emulsifiers and thickeners.

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