Brazil is often dubbed as “one of the world’s great breadbaskets” because it supplies a variety of food products like soybeans, coffee, and sugar to many countries worldwide. With rising inflation pushing food prices up, Brazil’s exports have seen a significant boost, allowing the country to capitalize on its agricultural strengths. And with the global appetite for food projected to surge by 60% in the next decade, Brazil is well-positioned to capitalize.
As the demand for agricultural products grows, Brazilian leaders have grown increasingly aware of the need to balance production with environmental responsibility. This means investing in practices that not only ensure a steady supply of food but also protect the ecosystems that support their agriculture. Companies that understand the long-term risks associated with climate change have started to evolve by embracing sustainable farming practices for the better.
For instance, Brazil’s fruit farming sector is a vibrant tapestry of innovation and sustainability. Last year, the country exported over 1 million tons of fruits, with a 40% increase in grape exports followed by a 15% boost in mangoes. Thanks to sustainable management techniques, prioritizing efficient water use, and biological pest control, the sector generated revenues of over $1 billion.
Moreover, Brazil’s agricultural sector is expanding its global market presence with numerous countries recently opening their doors to Brazilian products. This year alone, Brazil has expanded its agricultural export total to 138 markets, thanks to 216 new market access agreements secured since 2023.
In August 2024, Brazilian agribusiness exports exceeded $14 billion, fueled by strong demand for products like soybeans, meats, sugar-alcohol, cereals, flours, and forest products. China emerged as the largest destination, accounting for 27.4% of these exports, followed by the European Union at 16% and the United States at 6.7%. Over the past year, Brazil exported a total of $165.76 billion in agribusiness products, reflecting a modest growth of 1.6% year-over-year.
Can ADM Benefit From Brazil’s Agricultural Boom?
Archer-Daniels-Midland Company (ADM) has been navigating a tough market, but Brazil’s booming agricultural sector could provide a much-needed lift. ADM, a global leader in procuring, processing, and transporting agricultural commodities, has deep ties to Brazil's agribusiness. The company’s three main divisions, Ag Services & Oilseeds, Carbohydrate Solutions, and Nutrition, rely heavily on the steady flow of raw materials like soybeans, corn, and wheat, which Brazil exports in abundance.
However, after a disappointing second quarter that ended on June 30, 2024, the company is turning to sustainability and regenerative partnerships to navigate the current down cycle. ADM’s revenues dropped by 11.7% year-over-year to $22.25 billion, largely due to the underperformance of its Agricultural Services & Oilseeds segment, which fell 12.6% year-over-year.
This was driven by high logistics costs and a smaller crop yield in southern Brazil, while abundant supplies in South America kept global prices low. These conditions made U.S. farmers hesitant to sell their crops, further hurting ADM’s performance.
Its earnings before taxes declined 47% from its year-ago value to $596 million, while its adjusted net earnings amounted to $508 million or $1.03 per share, representing a 50.9% and 45.5% drop from the prior-year quarter. Despite these setbacks, ADM remains focused on growth opportunities across its core businesses.
“The pressures of the current commodity cycle do not seem to be demand-driven, as we see continued robust demand for meal and oil,” CEO Juan Luciano said in an investor call. “We will continue to focus on how we can actively manage our global footprint to best match these realities moving through the remainder of the year.”
ADM is also streamlining operations, cutting costs, and investing in sustainability, health, and food security to position itself for future growth when the market rebounds.
But Does ADM’s Strategic Initiatives Hold Potential?
As ADM navigates through the complexities of crop surpluses and other market challenges, CEO Juan Luciano has indicated that the company is strategically looking to expand its production of renewable materials, biofuels, and on-farm digital technologies that could yield high-growth opportunities when market conditions improve.
For example, ADM is ramping up production at its North Dakota soybean crusher, Green Bison, and enhancing digital tools for farmers. The company is also focusing on its Regen Act programs and its BioSolutions platform, which enables clients to substitute petrochemical ingredients with plant-based alternatives.
Moreover, to bolster its financial position, ADM is accelerating a $500 million cost-reduction plan which is expected to deliver results later this year. The CEO mentioned that this initiative could set the company up for “potential upside in 2025 as more projects are identified and executed.”
Street expects ADM’s EPS for the fourth quarter ending December 31, 2024, to increase 8.9% year-over-year to $1.48. Meanwhile, its revenues are expected to increase marginally from the prior year period to $23.09 billion. For the fiscal year 2025, both revenue and EPS are anticipated to register a year-over-year improvement of 2.6% and 1.3%, reaching $89.93 billion and $5.39, respectively.
However, the stock has plunged nearly 21% year-to-date and is currently trading below its 50-day and 200-day moving averages of $59.71 and $60.64, respectively. Thus, it could be wise for investors to wait for a better entry point.
