Before news of the accounting issues broke and sent ADM shares tumbling 24 per cent on Monday, the biggest fall since 1929, according to the Center for Research in Security Prices, the company had been forecasting the Nutrition unit it has been expanding for much of the past decade would return to profit growth in 2024.

The recovery in the business segment that generated about 11 per cent of profit for ADM in 2022 would have helped cushion the blow from thinning margins in soybean crushing and ethanol, and from lower crop prices as global supplies of corn and soy rise, analysts said.

“It is now uncertain whether Nutrition operating profits will return to (year-over-year) growth in 2024,” said Arun Sundaram, senior equity analyst at CFRA Research.

“We expect the investigation and uncertain outlook to cast a shadow over ADM’s shares, as the Nutrition segment was once the fastest growing and most profitable segment,” he said.

CFRA cut its 12-month price target for ADM to $61 a share from $76 previously, one of several analysts that downgraded ADM share targets Monday.

Shares were up 1.6 per cent on Tuesday after sinking to a nearly three-year low the previous day.

ADM and its crop processing and trading rivals cashed in on historically wide soy crushing margins over the past two years due to strong demand for vegetable oil to make biofuel, and reduced soy product supplies from drought-hit Argentina. Those margins are now thinning due to expanded U.S. processing capacity and a projected crop rebound in Argentina.

Meanwhile, margins for producing ethanol biofuel, a cornerstone of ADM’s portfolio, have narrowed and a global grain glut has curbed crop exports from the United States, home to the bulk of ADM’s operations.

Rivals including Bunge BG.N have more of an export base in Argentina and Brazil.

Lowered outlook

ADM on Sunday put its CFO Vikram Luthar on administrative leave and postponed the upcoming release of fourth-quarter results and its annual 10-K filing with the U.S. Securities and Exchange Commission (SEC).

The investigation started in response to a voluntary document request by the SEC. ADM said it was cooperating with the regulator. An SEC spokesperson declined to comment about the voluntary document request and if the agency is investigating ADM.

The company also cut its adjusted earnings forecast to “above $6.90” per share for 2023 from an “excess of $7 a share” view earlier, and withdrew all of its forward-looking outlooks for Nutrition.

ADM has invested billions of dollars over the past decade in Nutrition, the smallest yet fastest growing of its three main business units, starting with its $3 billion acquisition of WILD Flavors in 2014. In that time, annual adjusted earnings per share swelled from $2 to $3 a share to a record $7.85 in 2022.

ADM executives frequently tout the segment as the future of the company, aiming to capitalize on healthier eating trends and rising consumer demand for natural ingredients and flavorings.

The unit also provided more earnings stability as company results were tied less directly to the highly cyclical commodities market.

It was unclear if two recent Nutrition unit acquisitions due to close early this year would be impacted. ADM announced the purchase of Revela Foods, a Wisconsin-based developer and manufacturer of dairy flavor ingredients, and UK-based flavor and ingredient firm FDL late last year. Analysts also struggled to gauge future returns for the Nutrition segment.

“If we can’t rely on the financial statements, it’s hard to judge the return that they are getting for all these acquisitions if there is going to be a massive restate of profits that affects multiple years,” said Seth Goldstein, strategist with Morningstar.

–Additional reporting for Reuters by David Gaffen and Tom Polansek.

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While he expects Manitoba’s feed grain harvest to provide some relief to feed prices for pork producers, Dahl also mentioned Russia’s invasion of Ukraine, the African swine fever situation in China and growing protectionism in the U.S. as factors that can upend the industry.

“There’s a lot of volatility and a lot of uncertainty. I think, at this time, we are seeing positive margins in market hogs. But earlier this year, that was definitely not the case and we’ve seen significant volatility in the market,” he said. “It would be my assessment that that uncertainty and volatility is going to be with us for some time.”

However, one bright spot for the Manitoba pork industry was last summer’s expansion of Winkler Meats, 110 km southwest of Winnipeg. A joint venture between Manitoba-based farm management services firm the Progressive Group and U.S. sausage company Johnsonville, the $52.8 million project, partially funded by the federal and provincial governments, will add 155 local jobs.

The expansion follows the openings of the Maple Leaf Foods bacon processing plant in Winnipeg in 2021 as well as Topigs Norsvin’s Innova Canada nucleus farm near Plumas northwest of Winnipeg last year.

“Because we’re seeing that critical mass of hog production in Manitoba, we’re seeing that investment come to our province, to our economy. Building jobs and building community, it’s a very big thing,” Dahl said. “To have that ability to cull sows in Manitoba as opposed to moving them into the U.S., that takes a significant risk out of the equation.”

Pork is also becoming more attractive for Canadian consumers. According to Statistics Canada, prices for fresh and frozen pork products went down six per cent from July to August and 0.9 per cent year-by-year.

While prices can fluctuate, the price differential between pork and beef is more important, Dahl said. Beef prices went up 2.4 per cent from July to August and 11.9 per cent over the past year.

“What we’re seeing is the differential between beef and pork grow and that should bolster demand especially at a time of very high food inflation,” he said.

Manitoba Pork has performed biosecurity assessments at approximately 200 hog sites, according to Dahl, while producers must also follow more than 100 requirements before delivering animals to federally-inspected plants.

Before Manitobans go to the polls to decide their next provincial government on Oct. 3, Dahl wants political parties and voters to recognize the economic and community benefits of the industry.

“We recently had an economic study done that shows the pork sector contributes over 22,000 jobs, directly and indirectly, to the provincial economy. $2.3 billion worth of GDP every year, which is 3.5 per cent of Manitoba’s GDP,” he said, later summarizing his pitch with four points.

“Building community, our contributions to the economy and jobs, the large strides that have been made in environmental sustainability and manure management, and the rigorous animal care.”

— Adam Peleshaty reports for MarketsFarm from Stonewall, Man.

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Ottawa and the province announced Aug. 4 that they’ve reopened the jointly-funded program, as wildfires and/or “extremely dry” growing conditions have dragged on many Alberta producers’ work in the months since the program’s regular enrolment deadline of April 30.

Farmers and ranchers were “blindsided” by wildfires and drought and “need support options to make it through this growing season,” provincial Agriculture Minister RJ Sigurdson said in a release.

“Allowing late participation in AgriStability will enable to them to reassess their business risks and make an informed decision about signing up to protect their operations and livelihoods.”

Late participation in AgriStability is offered only in a program year in which a given province or territory’s producers experience a “significant agricultural disaster,” either sector-wide or provincewide.

For example, Alberta poultry producers in February got a late participation sign-up window for the 2022 program year in the wake of significant avian influenza outbreaks in domestic poultry. A similar option was announced in March for B.C. farmers and ranchers for the 2022 program year, citing an unusually cold and wet spring as well as that province’s own rash of avian flu outbreaks.

Between June 1 and Dec. 31 in an affected program year, a province or territory can request that late participation be allowed. The federal government and affected jurisdiction must then agree jointly to extend the deadline.

AgriStability, which in Alberta is administered by Agriculture Financial Services Corp. (AFSC), is meant to cover an enrolled producer’s margin declines greater than 30 per cent, at 80 cents for every dollar of decline.

That said, payouts — including interim payouts — to those who sign up via a late participation option such as this one are reduced by 20 per cent, so as to “encourage proactive enrolment.”

The form to apply for AgriStability under late participation for the 2023 program year is available at the AFSC website and must be submitted by the Sept. 29 deadline. Late participants must also pay an up-front non-refundable fee before the form will be processed; the deadline to pay that fee is Dec. 31, 2023.

‘Threats’

Alberta’s historically bad year for wildfires is ongoing. So far in 2023, the province has recorded 971 wildfires affecting about 18,000 square kilometres in total.

As of Aug. 14, the province reported 88 of those fires as active; of those, 64 are listed as “under control” and all but one of the remaining 24 as “being held.”

As for crop conditions, drought and dry spells have particularly affected Alberta’s south and central regions.

As of Aug. 8 provincewide, crops in conditions rated good-to-excellent account for 42.8 per cent of the estimated total; for south and central regions, those numbers are 28.2 and 35.3 per cent respectively, well below both regions’ five- and 10-year averages.

“Risk management programs like AgriStability are essential to help producers manage these threats to their operations, and we want to ensure they have the time they need to make decisions that are right for their business,” federal Ag Minister Lawrence MacAulay said in the governments’ Aug. 4 release. — Glacier FarmMedia Network

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According to the latest FCC Food and Beverage Report, released Tuesday, sales increased 11 per cent to $156 billion in 2022. These gains came largely from higher export values and strength in the grain and oilseed milling industry.

On the manufacturing side, margins were tighter last year as companies navigated increases in the prices of raw materials, labour shortages and supply chain disruptions.

“Gross margins as a percent of sales fell to their lowest level in over 20 years in 2022,” FCC’s chief economist J.P. Gervais said.

“While margin trends vary based on industry, we do anticipate an overall improvement to gross margins in the coming year.”

FCC projects a modest two per cent growth in sales in 2023. However, dairy, meat and seafood are expected to outperform that forecast.

“Consumers cut back on discretionary spending last year as they faced higher inflation, depleted savings and higher costs of servicing debt,” Gervais said.

Domestically-produced food faced a decline, reverting to the pre-pandemic consumption mix of domestic versus foreign foods. However, that’s partly the result of an increasingly diverse Canadian population looking to put different kinds of food on their tables.

“Inflation led to changes in food consumption decisions which resulted in fewer purchases of locally made or higher-value foods that consumers supported in mass during pandemic lockdowns,” Gervais said.

“We all know money doesn’t have the same buying power it once did, and consumers are being careful with their grocery budgets. Despite inflationary pressures, we continue to see Canada’s food and beverage sector adapt and innovate to meet the changing market demands.

“The sector remains healthy and has a positive long-term outlook.”

Global demand for Canadian-produced food is growing rapidly, he said. Promising food manufacturing innovations and technology can position Canada to expand its reach into profitable emerging industries.

There is also opportunity to grow the sector by meeting consumer demand for affordable, convenient and sustainably produced foods.

“How businesses adapt to changing consumer needs and economic conditions will determine their success going forward,” Gervais said.

“There have been many tests of resiliency and adaptability in recent years and the strength of the sector proves that despite challenges, there are opportunities Canadian food and beverage manufacturers are eager to take advantage of.”

The annual FCC Food and Beverage Report features insights and analysis on grain and oilseed milling; dairy, meat, sugar, confectionery, bakery and tortilla products; seafood preparation; and fruit, vegetable and specialty foods as well as soft drinks and alcoholic beverages. — Glacier FarmMedia Network

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“Packers are clearly chasing hogs. The supply of butcher hogs is not enough to meet demand,” said Dennis Smith, commodity broker at Archer Financial.

CME April lean hogs settled 2.525 cents higher at 103.8 cents/lb., while thinly-traded February hogs added 2.625 cents to 90.325 cents/lb. (all figures US$).

The national weighted-average price for purchased swine climbed $7.99/cwt, the U.S. Department of Agriculture said, while the CME’s Lean Hog Index a two-day weighted average of cash hog prices, firmed 1.57 cents to $85.87/cwt.

Processors slaughtered 481,000 hogs on Tuesday, remaining strong compared to last weeks diminished activity.

Meanwhile, nearby live cattle futures stepped back but remain elevated by strong consumer demand.

“Packer margins are still extremely profitable,” said Smith. “They have the financial incentive to process them and ship them, even though the beef is down.”

Boxed Beef prices were mixed, with choice cuts firming 29 cents to $279.25/cwt, while select cuts eased 21 cents to $274.83/cwt.

CME April live cattle ended down 0.225 cent at 146.175 cents/lb. March feeder cattle firmed 1.85 cents to 166.875 cents/lb., supported by weaker corn futures on the Chicago Board of Trade (CBOT).

Cash cattle trade was minimal across the U.S. Great Plains early in the week, though prices firmed last week to $138-$140/cwt.

Cattle slaughter improved, with processors slaughtering 122,000 head, up from a week ago and a year prior, USDA said.

— Christopher Walljasper reports on agriculture and ag commodities for Reuters from Chicago.

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“Is canola expensive? Yes, but everything is expensive,” said analyst Mike Jubinville of MarketsFarm. While canola may look overpriced by some metrics, he noted the high prices were necessary to ration demand as canola trades relative to other markets.

“The crusher needs everything,” he said, adding he expected domestic processors would continue to keep canola well supported in order to secure supplies and thwart export movement.

Also, while traditional crush margin calculations based off of soyoil and meal values indicate canola crushers should be losing money at current prices, the real crush margin is actually much stronger with canola oil trading at record premiums over soyoil, according to Jubinville.

“I think canola has disconnected from soybeans,” he said.

European rapeseed and Malaysian palm oil are both trading at highs of their own, while energy markets have also shown some strength.

The charts also look supportive for canola, with March holding well above its major moving averages and no overbought signals from a technical standpoint, according to Jubinville.

“We’ll have corrections and they could be sharp ones… but it doesn’t mean this is over,” he said, adding “the trend is still up.”

— Phil Franz-Warkentin reports for MarketsFarm from Winnipeg.

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CME February live cattle settled down 0.55 cent at 138.3 cents/lb. but stayed inside of Monday’s trading range (all figures US$). For feeder cattle futures, most-active March fell 0.075 cent, to 166.4 cents/lb., while spot January feeders slid 0.95 cent to end at 164.575 cents.

Cash cattle traded lightly in Kansas at $138 per hundredweight (cwt), traders said, $2 cheaper than last week’s top price, as meat packers planned for lighter kills during the upcoming holiday weeks.

Wholesale boxed beef prices fell, with choice cuts down $2.50, at $260.72/cwt, the lowest since April 5, and select cuts down $4.84, at $248.80/cwt, according to the U.S. Department of Agriculture.

“If we can’t really get boxed beef to start turning higher seasonally, that is going to get the packers to sit on their hands,” potentially anchoring cash cattle prices, said Matt Wiegand, a commodity broker for FuturesOne.

“The packers are still making good money, but not what they were,” Wiegand said.

Profit margins for beef processors on Tuesday fell to $185.30 per head of cattle from $191.05 on Monday and $236.90 a week ago, according to livestock marketing advisory service HedgersEdge.

On the hog side, CME lean hog futures fell for a second session after Friday’s four per cent surge. The benchmark February hog contract settled down 0.675 cent at 80.075 cents per pound.

U.S. wholesale pork values declined with the carcass priced at $85.48/cwt, down $1.55 from Monday, USDA reported.

“The pork cutout, it’s really treading water. That is probably limiting buying enthusiasm here,” Wiegand said.

— Julie Ingwersen is a Reuters commodities correspondent in Chicago.

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Cattle futures also were weaker, with weak profit margins weighing on the market.

CME February lean hogs settled 1.675 cents lower at 76.55 cents/lb. (all figures US$). The contract hit its lowest price since Oct. 29.

Pork processors earned $30.80 per hog, up from $22.90 per hog on Monday but well below the week-ago level of $51.25, according to livestock marketing advisory service HedgersEdge.

CME February live cattle finished 0.425 cent lower at 139.225 cents/lb. CME January feeder cattle dropped 0.225 cent to end at 165.025 cents/lb.

Profit margins for beef processors on Tuesday fell to $236.90 per head of cattle from $252.25 on Monday and $314.00 a week ago, HedgersEdge said.

— Mark Weinraub is a Reuters commodities correspondent in Chicago.

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“The trend remains up,” analyst Mike Jubinville of MarketsFarm Pro said. “The price of canola needs to be put at a level that discourages exports, while the domestic crushers actively pursue attaining as much of the limited supply that we have this year.”

While short-term corrections are possible as fund traders will book profits on their large net long positions from time-to-time, “as long as the energy sector continues to trend upwards… it’s hard to envision that canola will go into any sustained downtrend.”

The Chicago Board of Trade soy complex also showed some strength during the week, but Jubinville noted canola’s traditional relationship with soybeans and soyoil is out of balance.

The traditional calculation for determining crush margins uses soyoil and soymeal as benchmarks. When looking from that perspective, canola crushers should be seeing negative margins.

However, Jubinville said, the actual canola oil premium over soyoil, which is not publicly reported, is at record levels.

“So the real crush margin that doesn’t show up in a theoretical calculation is still profitable, said Jubinville. “I can’t recall a time when canola and soybeans have been out of balance to this degree.”

— Phil Franz-Warkentin reports for MarketsFarm from Winnipeg.

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Corn followed wheat higher, but gains were dragged down by pressure from a lower soybean market as U.S. farmers reap better-than-expected harvests of the oilseed.

The most-active wheat contract on the Chicago Board of Trade (CBOT) ended 14-3/4 cents higher at $7.56 a bushel, notching a three per cent weekly gain (all figures US$).

CBOT’s most-active corn gained 5-3/4 higher at $5.38 a bushel, climbing 2.33 per cent for the week.

CBOT soybeans fell 3-1/2 cents lower at $12.20-1/2 a bushel.

“Wheat’s the mover, taking support from global demand,” said Karl Setzer, commodity risk analyst at Agrivisor.

Wheat markets continued to grapple with strong export demand as stockpiles are expected to decline in major exporting zones this season.

In Australia, robust demand for wheat is quickly filling up shipping slots as importers book cargoes ahead of what is expected to be a second year of near-record output.

Soybeans slipped, but were supported by firming crush margins.

“Harvest is going well, it seems like the yields are better than the USDA is saying,” said Ted Seifried, vice president of Zaner Group. “At the same time, crush margins have gotten substantially better for soybeans, both here in the United States and also in China.”

CBOT November/December board crush, an indicator of profit margins for soybean crushers, climbed to 182 cents a bushel, an 18.95 per cent weekly gain.

A pullback in vegetable oil markets capped soybeans.

CBOT corn found underlying support from talks of shifting U.S. acres toward soybeans next year due to climbing fertilizer costs, while beneficial rain for planting in Brazil and upward revisions to U.S. and European harvests curbed prices.

— Reporting for Reuters by Christopher Walljasper; additional reporting by Gus Trompiz in Paris and Naveen Thukral in Singapore.

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