Grain performance helps The Andersons turn profit in third quarter

by Holly Demaree
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The Andersons
The expansion of the ethanol production facility in Albion, Michigan, U.S., continues to proceed, on schedule and on budget. 
 
MAUMEE, OHIO, U.S. — Net income attributable to The Andersons, Inc. in the third quarter ended Sept. 30, was $1.722 million, equal to 6¢ per share on the common stock, which compared with a loss of $1.227 million in the same period of last year.

Revenue for the third quarter was $859.612 million, down 5.4% from $909.093 million in the same period of last year.

“Conditions are improving for our Grain Group and margins are strong for our Ethanol Group, but challenges persist with our Plant Nutrient Group facing weak margins and our Rail Group continuing to experience softening in utilization,” said Pat Bowe, chief executive officer, when results were announced on Nov.7. “In this mixed environment, the team is making good progress on our $10 million cost reduction initiative and continuing to take action on items within our control to combat uncertainty in some of our markets.”

In the third quarter the Grain Group’s pre-tax income was $1.879 million, up significantly from $131,000 in the same period of last year. In May, The Andersons completed the sale of eight of its facilities in Iowa, U.S., to MaxYield Cooperative of West Bend, Iowa, U.S. The company said the Grain Group benefited from selling the underperforming assets and positioned itself to take advantage of improving crop conditions in the Eastern Corn Belt. Overall, grain production in the Eastern Corn Belt has rebounded from last year.  Bean yields were strong and corn did well in most markets with some pockets of weaker yields.

Harvest is well under way in most of the company’s markets and substantially done in some, the company said. The Andersons said it is seeing factors that will affect the Grain Group’s results in the fourth quarter and first half of 2017.

Though there are some localized areas of weaker production in Michigan, U.S., and Ohio, U.S., the majority of the Grain Group's draw areas have enjoyed significantly better production than last year, allowing them to purchase grain at good levels, according to the company.

Wheat storage rates should be stronger year over year as carries in the wheat market were supported by increased Variable Storage Rates (VSR) that went into effect in the third quarter, The Andersons said. The market is currently supporting a little over half of the full carry benefit of the VSR increases.

The Andersons said performance of the added elevator capacity in Tennessee, U.S., was muted during the third quarter by stronger-than-normal export demand and cheaper barge freight on the Mississippi River, which increased local competition during their harvest.

While results in Grain’s affiliates have improved compared to the first two quarters of this year, Lansing Trade Group is behind the company’s expectations largely attributed to compressed margins at its grain facilities and lower DDG flows to China given recently imposed import duties.

During the third quarter, the Ethanol Group’s pre-tax income was $9.541 million, up 62% from $5.888 million in the same period of last year. Ethanol margins rose throughout the quarter as corn prices remained modest and gasoline prices began to return to prior year levels after holding at five-year lows for most of the year.  According to The Andersons, Renewable Identification Number (RIN) prices held at strong levels through the quarter, near the 90¢ level, which supports demand for higher blends such as E-85. A portion of the quarters margins were hedged early in the quarter to lock in at attractive levels.

The expansion of the ethanol production facility in Albion, Michigan, U.S., continues to proceed, on schedule and on budget. The project will double the joint venture’s annual capacity to about 130 million gallons.  The Ethanol Group expects the added capacity to come on line in the first half of 2017.

Industry dynamics in the quarter were supportive, with record production levels and historically high levels of gasoline demand driven by low fuel prices, the company said. The Ethanol Group continues to see softness in distiller’s dried grain (DDG) prices. Chinese sanctions and higher vomitoxin levels near some of The Andersons’ facilities have had some negative impact on DDG.

The Plant Nutrition Group sustained a loss of $7.231 million in the third quarter, compared with a loss of $11.114 million in the third quarter of 2015. The slightly better performance was derived from expense reductions resulting from integration of the Kay-Flo business and savings generated as part of the company’s productivity initiative, The Andersons said. Prior-year results also included one-time acquisition related costs. These year-over-year improvements were largely offset by a continuing weak margin environment for nutrients due to oversupply and falling prices in the market.

During the third quarter basic nutrient volumes fell in part due to producer and dealer reluctance to buy in a sustained falling price environment, the company said. The Plant Nutrient Group also saw lower advance purchase activity during the quarter. These market forces are expected to persist through the fourth quarter.

According to the company, industry margin pressures and lower crop prices have weakened near-term Plant Nutrient Group’s performance in both the legacy basic nutrients and the more recently acquired specialty products businesses. The group remains committed of the soundness of its long term strategy to grow its specialty nutrients products that support precision agriculture. However, performance and market conditions have been disappointing this year. At this point the Plant Nutrition Group expects that the Kay-Flo acquisition will be near breakeven this year.
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