Corn prices are up, and ethanol prices are down, but agri-business giant Archer Daniels Midland still managed to pull in record profits last quarter. How does ADM keep beating expectations despite what many thought would be tough market conditions?
As Tim Carney, the editor brother of DealBreaker editor John Carney, explains in his most recent column in the Washington Examiner that one element in ADM’s success is that much of it’s profits are protected from the market by government policy.
The federal government keeps out most foreign sugar, setting low quotas for how much sugar each country can sell in the United States. By choking off supply, these quotas inflate the price U.S. consumers — including food makers — pay for their sugar.Often, the U.S. price for raw sugar is two to three times higher than the world price. This year, global sugar prices fell, causing crises for sugar farmers in places like India, but U.S. sugar prices remained near record highs.
When sugar is so expensive, food makers opt instead for corn syrup, thus creating a market for ADM’s product that wouldn’t exist in a free market. Its sweeteners business accounted for $164 million of ADM’s profits in the last quarter.
In short, sugar protectionism protects a lot more than sugar these days. It protects ADM’s bottom line as well.
Government shelters agro-giant from storms of competition [Washington Examiner]
Posted by The Sweet Observer, Nov 09, 2007 11:57AM
Some sugar traders cause their own problems:
Oct. 31 (Bloomberg) -- Tate & Lyle Plc, maker of the calorie-free sweetener Splenda, said first-half profit fell 56 percent because of sugar-trading losses and a weaker dollar.
``It has been something of an annus horribilis for Tate & Lyle,'' Richard Hunter, head of U.K. equities at Hargreaves Lansdown Stockbrokers in London, wrote in a research report.
The company lost 18 million pounds in profit before tax on sugar trading and 10 million pounds on exchange-rates. "