Archer-Daniels-Midland (ADM)

ADM, unlike Bunge, has developed immense soybean crushing capacity in China, one of the world’s largest markets for soybean oils. It has acquired facilities in the 10 best Chinese ports.

Earnings call notes:

• 90% of the increase (in net sales and profits) was attributable to increases in selling prices, primarily resulting from the significant increase in underlying commodity costs. The remaining 10% of the increase in sales revenue was due to higher sales volumes.

This is important because it signals higher selling prices are sticking and not hurting demand. ADM is coming off a year of record demand and it increased, along with prices in the current one.

Along with this was that gross profit grew approximately 12% for the quarter to $807 million, as overall operating margins improved. In short, higher commodity costs are not hurting results.

• ADM expects to see higher selling prices for ethanol in this current quarter that we are in compared to last quarter and shipments should remain at a good pace. As current market prices for ethanol remains very attractive relative to unleaded gasoline.

Here was an interesting comment that came out of a question of what ADM will do in regards to debt repayment vs share buybacks: "The agencies, of course, discourage share buy backs, but we still have some commodity volatility. We have our ongoing CapEx program that's got a little more than a year to kind of run out. We're kind of at the peak spending period as we stand here. And we see some good M&A opportunities out there that we're evaluating each and every day."

M&A is almost never mentioned on an ADM call in any way. The fact that the subject was broached in this way gives real credence to last weeks reports that ADM is planning to announce something in Brazil very soon.

Good news for ethanol producers like ADM (ADM), Verasun (VSE) and Pacifc Ethanol (PEIX).

The U.S. Department of Agriculture forecast that farmers will harvest 12.3 billion bushels of corn, up more than 570 million bushels from last month's estimate of 11.7 billion. That's down 6% from last year's record crop of 13.1 billion bushels, but 17% above the 2006 harvest.

Average corn prices this year are expected to drop to $4.90 to $5.90 per bushel, down 60 cents from last month's forecast of $5.50 to $6.50.

Corn prices soared to record levels near $8 after the floods, the worst to hit the Midwest in 15 years. But cooler, wetter weather since then will boost corn yields to 155 bushels per acre, up from last month's estimate of 148.4, the department said.

Corn prices have already dropped to almost $5 per bushel, though that is still higher than in 2006, when a bushel cost $2.

In its recent earnings release, ADM said it expected to see higher ethanol selling costs this quarter and this news ought to bring down corn costs that saw a "significant increase in the prior quarter.

ADM has developed NovaLipid which can produce margarines and shortenings with zero trans-fats. New York is facing a proposed trans-fat ban and this product could potentially supply the restaurants.

Archer-Daniels-Midland is seeking EPA approval for a 12% ethanol gasoline blend for use in all cars. Long-term efforts, according to the company, seek the approval of a 15% ethanol blend for use in all cars, though the feasibility of such a proposal is still in question. A 12% ethanol mandate would make ethanol more widely available as well as increasing demand of ethanol products and services, a substantial market in ADM's business operations. ADM has increased ethanol production as corn prices fall.