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Ag infrastructure still feeling winter's chill

04/28/2014 @ 8:32am

The bitter cold and piles of snow have largely receded, but this winter's harsh weather is likely to chill profits of U.S. agricultural companies.

Freezing temperatures hampered U.S. railroads, worsening capacity problems caused by grain and ethanol jockeying with crude oil for train space. Now the transport problems are raising alarms that fertilizer supplies could run short, while in northern reaches of the country some farmers are delaying planting corn and soybeans because of the prospect of more poor weather.

The exact impact is likely to become clearer this week when grain giants Archer Daniels Midland Co. and Bunge Ltd. report first-quarter earnings. Investors will be watching for any lingering effects of the winter on spring planting, and any continued impediments to grain flows from farms.

"This was the worst [winter] out of the past 10, at least," said Bill Selesky, senior research analyst with Argus Research Co, who estimates that weather-related disruptions shaved on average two to five cents a share from agricultural companies' earnings over the first three months of the year. "This one seemed to be almost overwhelming."

Agricultural traders and processors have been riding a wave of grain after last year's bumper crop brought a record 13.9 billion bushels of corn, as well as 3.3 billion bushels of soybeans, the third-largest haul of the oilseed ever.

The bounty has provided merchants like ADM and Bunge more grain to sell to food companies and governments. Booming supplies also pushed down their costs when buying crops from farmers--corn futures prices are down 31% from their highest point last year, which reflected lingering shortages from the 2012 drought, while soybean prices are down 5%.

But the cold, long winter disrupted those dynamics. Railroads had to run shorter trains with less capacity, and barges struggled with icy rivers, slowing the movement of grain and ethanol to ports and plants.

The winter ranked as the eighth-coldest for the U.S. in the past 64 years and dumped 82 inches of snow on Chicago's rail terminals, the third most on record, according to MDA Information Systems, a weather-analysis firm in Gaithersburg, Md. As of late April, one-third of the Great Lakes remained frozen, compared with the usual 2%.

Overall, analysts expect ADM to report earnings of 74 cents a share on Tuesday, up 54% from the year-ago period, according to FactSet. Analysts expect Bunge on Thursday to report that per-share earnings rose 23% to $1.42 a share for the quarter.

But some analysts have been scaling back their expectations.

Ann Duignan of J.P. Morgan Chase & Co. last week trimmed her forecast for ADM's profits by 16% to 63 cents a share, partly due to weather-related disruptions. Despite strong ethanol prices and favorable profit margins, railroad snarls forced producers like ADM to store more of the fuel during the quarter and slowed farmers' crop sales, which could also pose a risk to Bunge's profits, according to analysts.

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