27-Jan-2021
03:13:10
ADM Highlights China Demand 01/27 15:12
ADM Executives Also See Recovery for Ethanol Sector in 2021
ADM sees higher Chinese imports of corn and ethanol throughout 2021 as
company executives pointed to some of the demand drivers that could help
sustain the corn and soybean sectors. They also expect U.S. farmers will bring
more acres into production this spring.
Chris Clayton
DTN Ag Policy Editor
OMAHA (DTN) -- Looking at the next 18 months to two years of global grain
and oilseed demand, Archer Daniels Midland Co. executives on Tuesday said they
see an environment of heavy demand that will bring more acres into production.
Juan Luciano, ADM's CEO, talked about demand on a quarterly earnings call
with analysts. Despite an unprecedented year due to the pandemic, ADM reported
fourth-quarter earnings in 2020 of $687 million, up from $504 million for the
same quarter a year ago. ADM also announced a 37-cent-per-share quarterly cash
dividend.
Among the drivers of growth were global demand for agricultural commodities,
especially from China, which pushed higher export volumes and margins. "We
expect 2021 to be a very, very strong year with oilseeds and ag services,"
Luciano said.
Responding to a question on longer-term demand for grains and oilseeds,
Luciano said ADM sees "an environment of real demand, real effective demand"
going forward because customers do not have a lot of inventory and have been
"hand-to-mouth" with buys.
"So, we see this is going to take 18 to 24 months for these supply-demand
balances to be rebuilt," Luciano said. "We see these conditions subsisting for
the next couple of years, even with farmers ... trying to play more because I
think the prices will bring more acres into production. But we need those extra
acres right now."
ADM expects China to import about 25 million metric tons of corn (984
million bushels) throughout the 2020-21 marketing year, partially because ADM
sees China's inventory as "much lower than the market is reporting," which is
reflected in the prices now. Luciano added some Chinese imports are driven by
the pork industry's recovery from African swine fever, as well as
"professionalization" of the hog industry in the country that has increased the
volume of corn in rations, he said. "So, we think we will continue to see
multi-year increases in China's appetite for all of these commodities," Luciano
said.
While U.S. soybean exports typically slide in the first quarter of the year
as Brazilian harvest starts to kick in, Luciano also noted he expects to see an
"extended window of exports" for the U.S. because Brazil started planting a
little bit late. "So we're starting with good exports for the first quarter,
and we expect U.S. record volumes for Q1, and then we expect a very strong
season at the end of the year with another strong Q4, so we're very optimistic
about it," Luciano said.
In its quarterly presentation, ADM also cited that current U.S. farmer
selling of the 2020-21 corn and soybean crops to ADM is ahead of last year and
the five-year average for sales. Corn sales are at 74% of the crop, compared to
66% a year ago, and soybean sales are at 79%, compared to 62% a year ago.
Ethanol demand struggled through 2020 with lockdowns that created a
challenging environment for the industry. ADM's ethanol segment starts 2021
with weather margins, but company executives pointed to questions about how
small-refinery exemptions to the Renewable Fuel Standard will play out as the
U.S. Supreme Court will take up a case this year on EPA's actions. The ruling
on that case could have a significant impact on demand. Still, pointing to
pricing for the EPA's renewable identification numbers (RINs) for RFS
compliance, ADM executives expect domestic ethanol demand will be stronger over
2021.
"Particularly in the area of ethanol, we see green shoots of recovery in
2021 for this business here," said Ray Young, ADM's chief financial officer.
ADM executives also expect China to be a bigger player in 2021 ethanol
demand. After not buying U.S. ethanol for the past couple of years, China has
aggressively returned to the market. Young said it looks like China has already
committed in the first half of the year for U.S. ethanol buys of roughly 200
million gallons.
"They have already made commitments to buy U.S. ethanol for the first half
of 2021 that would reach all-time highs for sales," Young said.
Asked about why the U.S. could continue taking advantage of ethanol sales to
China, Luciano said corn right now is expensive in China, but sugar prices are
also expensive. That will change the dynamics of Brazil's sugar-based ethanol
production; Brazilian processors will have to decide between producing sugar or
ethanol.
"So, in Brazil, you make a choice," Luciano said. "It's different than in
the U.S. In Brazil, you make a choice of how much you make of sugar and
ethanol. And, of course, sugar prices are a big temptation this year, so we
expect higher exports and maybe we expect a little bit less pressure from
Brazil in that sense."
Chris Clayton can be reached at Chris.Clayton@dtn.com
Follow him on Twitter @ChrisClaytonDTN
(c) Copyright 2021 DTN, LLC. All rights reserved.
