ADM to expand North American soybean crushing operations amid high biofuel demand

Grain and oilseeds producer Archer-Daniels-Midland Co., or ADM, said July 27 it is gearing to expand its soybean crushing operations in North America, supported by robust demand from the renewable fuels industry, which also translates into higher demand for the oilseed.

ADM is pegging itself as a major feedstock supplier to the rapidly growing renewable fuels industry in the US. In line with that, the company broke ground on a soybean processing facility in North Dakota in the second quarter that will be operational in 2023, CEO Juan Luciano said during the Q2 earnings call.

The facility is expected to produce 600 million lb of soy oil annually.

In the medium term, the company sees North American soy meal demand rising 2%-3% every year, helped by the biofuel industry. ADM expects it will need to open a crushing plant every couple of years to meet the demand, Luciano said.

"We expect the demand for US green diesel to continue at a higher rate of growth, increasing by about 1 billion gallons per year and reaching up to 5 billion gallons by 2025. Vegetable oils will be a key feedstock to meet that growing demand," Luciano said.

"When you consider that it takes about 7.5 pounds of soybean oil to produce 1 gallon of renewable green diesel, you can appreciate the large potential opportunity."

Combined with strong demand from the renewable diesel sector, easing of coronavirus-led restrictions in the US is enabling recovery of the food service channel and more reopening of the economy, resulting in higher oil demand which translates into robust crushing margins, Luciano said.

Luciano added that weak soy crush margins in China and logistical issues in Brazil and Argentina -- the top suppliers of soy oil and meal -- are supporting the company's North American crushing operations and allowing US soy products to become more competitive in the global market.

China soy imports seen increasing

Luciano said that China is set to import 2 million mt additional soybeans in the upcoming months, despite market estimates pointing to lower purchases by the Asian country.

This increase will mainly fill the gap created by lower production of canola in Canada due to the drought, Luciano said.

He added that soy meal use in animal feed is also expected to increase as unfavorable weather across main grain and oilseeds producing countries, like Brazil and Russia, hurt corn and wheat yields while Chinese protein consumption continues to grow.

"So those products will not be available to compete with soybean meal, which will give soybean meal a higher inclusion in duration," Luciano said. "We feel very confident about the future of the demand in China."

In the last two to three weeks, global agricultural production loss has reached 15 million mt mainly due to weather events, according to Luciano.

Segment profits rise sharply

In Q2, net earnings attributable to ADM rose 50.8% from a year ago to $712 million, mainly reflecting increased exports to China and robust demand for vegetable oils.

Operating profit for the core ags and oilseeds services segment rose 38% on the year to $530 million, amid significantly higher corn exports to China and higher crushing margin in North American soybeans and EU softseeds to meet global vegoil demand.

This was partially offset by slower farmer selling and high commodity prices in South America, ADM said.

Additionally, carbohydrate solutions segment saw operating profits soar 96% year on year to $383 million, boosted by robust ethanol production margins amid a resurgence in driving miles in the US.