...is that it is just too complex. I read the 10K and how they make money is unfathomable. They are in several volatile commodities -- soy, corn, cocoa, other oil seeds -- whose price and quantity depend on weather, which no one can predict. They are a price taker on both the buying AND selling sides, so not much management can do at times. They are international, so a shortage of soy in Brazil might offset a bumper crop in North America. They are a processor, broker, market maker, shipper. And they hedge all over the place acting like a financial services company, often with scary levels of leverage. Ethanol is a great example of the complexity: they make more money when corn is abundant and low priced, while gasoline is at a high price. But there are three other scenarios, Low corn prices, low gasoline prices (neutral). High corn prices, low gasoline prices (presumably very bad). High corn prices, high gasoline prices (neutral). And then there are all the variable U.S. government rules and regs and subsidies, so they are subject to the whims on Congress. I bought shares in their old convertible pfd, an I'm looking to get out in the $33 range at a small gain plus dividends. My thesis when I bought was that world food demand is going up and folks want a better diet. Simplistic in the extreme. I should have followed the Buffet rule and not invested in a company I did not understand. I'll shift money into Potash maybe.
I'll grant you that what makes ADM successful (or less so) is complex, but the beauty is that you don't need to fully understand. I don't. But I do understand that this is a very old, consistently profitable company operating in absolute necessities. They are global, and they are diversified, which might not make this a moon shot, but it's as safe as anything you could take a stake in, if you your agenda is long term.
Can't believe you are giving ADM a sell reco when the USDA is calling for the largest corn acreage to be planted this coming year. 97-99 million acres of corn and 75 million acres of beans. ADM has the largest storage capacity in the US, 440 million bushel elevator storage capacity. Bigger than all the other grain Giants. Trade has punished them for high prices. ADM has not been able to utilize their big storage because grain/oilseed markets have been inverted. ADM makes the most money when they are able to carry grain from one month to the next and collect carrying charges from rolling futures from one month to the next. Highly doubtful we have 3 back to back to back years of droughts. We are due for a bin busting crop year and if and when normal markets come back because of all the corn looking for a home ADM will be at $65 a share. All we need is to realize this crop this year and there will be no stopping them. You would be a fool to sell ADM right now on the back of these planting intentions. Guaranteed way to lose money. Inverses work themselves out when commodities and incentives to produce are there. Sustainable commodity markets like corn and soybeans can not be inverted forever. When they get back to carry markets because the incentive is there then ADM will be unstoppable.
Ex .. ADM is fairly simple when you take a step back …. it does better in times of moderate to lower grain / input costs and worse when grains are higher. POT seems to be the opposite. So you just have to ask yourself is $7 corn and $14 beans the norm?
IMO the portability of a normal crop year for this next year and over the next ten years is higher than the probability of poor crop yields. ADM has demonstrated they can make a little under extreme conditions as they have been in these last two Q’s. They are obviously doing things to mitigate the commodity risks, whether it’s hedging or customer pricing tied to inputs.
POT on the other hand, they have huge margins, and farmers have been willing to pay for their product over the last few great years. If corn stays at $7 plus for the next five years I would be very high on POT. But will POT get a 40% GP margin if corn drops to $5 or how about $4. I don’t follow POT, but there appears to be some fairly significant downside risk there.
December corn is in the $5.50 range ... can ADM make some good money with those inputs? Will farmers pay up for POT products with the prospect of corn at that level and potentially going even lower?
I agree potash is starting to look attractive as it has come off quite a bit. Worried about competition in potash business, and it had quite a nice run up over the last several years and of course more recently corrected back down. I like to follow potash and watched with great interest when the Canadian government blocked its acquistion by a miner (I think it was bhp). Since the failed/blocked takeover attempt of potash the market seems to have punished it. Also bhp and i think others have persued other new potash deposits, but due to weak pricing have pushed back or cancelled new potash mines. long term both potash and adm and this sector look good, Ironically i had hoped that adm had gone into either potash or nitrogen fertilizer rather than ethanol but that is 20:20 hindsight. ethanol could still be a better move long term. time will tell. glta
One can agree that to understand a business is a good thing. But the reality is that large corporations that operate across many nations are complex, be it big oil, big auto or big food. One does not have to have enough knowledge to manage these corporations, and if one did better to spend the time doing just that. Now adm has been doing business for a long time and mostly or perhaps always profitable. It has its challenges and over any period of time is not a sure thing. I like potash as well, but adm is not compareable and is more diversified. Thinking potash has some competition upstarts possibly slowed down by weak potash prices, but long term looks good as well. You will have to draw your own conclusions. In some ways the agriculture etfs are perhaps the safer but damped upside way to participate in this sectors growth. good luck