The constant rain across much of the USA has been doing a good job of stifling planting. Here in Pennsylvania a fair amount of acreage is still unplanted and we have a full week of rain still to come before any chance of a break. It seems
likely that the widespread rain issues will substantially lower crop output not only in the USA, but also for several South American countries which have also been experiencing heavy rains.
So my question is, how much of an impact would a 1-2% drop in crop production have on ADM profitability? Would crop prices spike up enough to offset the lost crop revenues for ADM?
If corn pushes up to $5 what sort of impact can I expect to see in ADM revenues?
If you are concerned about crop prices maybe pick up some jja, rja, dba, or jjg, like a hedge. Of course those etf and etn have their own risks. imho both the ag etf, etn and adm have long term positive fundamentals. There is always talk about the risk of an etn versus a etf or a stock, so there are considerations. Regardless of the price of wheat, corn or soy beans going higher there is only so much demand destruction possible. unlike petroleum or copper etc. people have no choice but to eat, so there is a firm floor under the sales of such commodities.
So far this year i think the value of the US dollar could have more effect on adm than the weather. I notice whenever the dollar goes down the stock goes up. Perhaps more sales and also perhaps more foreign investment. A stronger Euro or Canadian dollar buys them more adm shares.
If only it were so simple. Adm is a complex and diversified company. From what i gather they buy crop commodities at a certain time and lock in some sort of price, so they seem to have some sort of hedge strategy. Most of the time i think adm makes its commodity calls right and also marks up its value added products. Of course sometimes they can get it wrong. Bottom line the variations in crop success around the world is infact one of the drivers for adm business. It takes the crops from where they are abundant and for sale to where the crops are not so good. Of course there are all the value added processes adm does. ethanol is only one of its business segments. I do think the ethanol business is one of the ways adm is making business partners in places like Brazil. Long term fundamentals look good for adm in general.
This articles summed up the problem well.
"Although plantings have improved markedly since then 93% complete as of the week ending May 31. There is a real risk that initial delays and sub-optimal weather in the Corn Belt, particularly as the crop enters the moisture-sensitive stage of corn development, could slash yield and reduce US ending stocks this season below the psychologically important 1 billion bushel mark. This would be bullish for corn, as will a weaker dollar, stronger energy prices, and improving corn ethanol margins."
Full text can be found here:
Things aren't that bad. Crops in most of the midwest are now ahead of last year: http://www.cattlenetwork.com/Content.asp?ContentID=319517
I can't answer your questions, but I can add to them. What will be the effect on prices if more farmers have shifted production from corn to beans? No doubt this will mean higher corn prices (again), but will soy prices tank and will that have an adverse or beneficial effect on ADM?
Ethanol is a ponzi scheme.
Monsanto gm soy causes gut lesions in rats.
This board is censored, so you are clueless.
Don´t bet it all on a ponzi, or you might go shoeless.
Don´t know about cats.
But government is blowing a wad on ethanol that causes smog.
And even as a kid I wouldn´t put pesticides in my yard because I like my dog.