MAUMEE, OHIO, US — Strong merchandising results in the first quarter of 2021 within The Andersons Trade Group buoyed the company’s year-over-year earnings.
Net income at The Andersons totaled $15.1 million in the first quarter ended March 31, 2021, equal to 45¢ per share on the common stock, which compared with a loss of $37.7 million in the first quarter of 2020.
“We are very pleased with the start to 2021 in this demand-driven agriculture rally,” said Patrick E. Bowe, chief executive officer and president of The Andersons. “These results are our best first-quarter performance since 2014 and reflect good execution coupled with the results of our multi-year cost reduction project. Commodity price volatility and market dislocations have created merchandising opportunities in many of the commodity supply chains that we touch in our Trade business and we expect that this will continue in the near term.”
The Trade segment recorded an adjusted pretax income of $14.3 million, which compared with a loss of $8.7 million in the same period of last year.
“Income from merchandising grains was strong compared to the first quarter of 2020, due to higher demand and increased market volatility,” said Brian A. Valentine, executive vice president and chief financial officer of The Andersons. “Specific areas of improvement were through our Houston Export Terminal, as well as in certain regional truck markets.”
Looking ahead for the Trade segment, Bowe said he is encouraged about the potential opportunities throughout 2021.
“Our current outlook for the trade business is positive, as supplies are projected to be tight into the fall harvest and beyond,” Bowe said. “A large harvest will reduce, but not eliminate, the impact of strong worldwide demand. With a broad trade portfolio that profits both on providing storage of grain stocks, as well as merchandising grains and grain products for consumptive demand, we see additional opportunities throughout the year.”
Bowe said that while these volatile conditions do create opportunities the company is focused on managing risks and plans to closely monitor the impact of planting progress and growing conditions.
The Ethanol segment had a pretax income of $2.9 million in the first quarter, which compared with a loss of $24 million in the first quarter of 2020.
“Co-product values were a significant source of improvement in ethanol's profitability during the quarter,” Valentine said. “This was driven by higher feed values, resulting primarily from the increase in corn prices, coupled with our new high-protein feed products. Ethanol board crush margins also improved steadily during the quarter, due to increases in driving demand and tightness in ethanol stocks. Third-party ethanol and vegetable oil trading results were also higher year-over-year.”
Bowe believes the Ethanol segment is “well positioned” to continue gaining strong ethanol margins.
“With improvement in gasoline demand, both from the pandemic recovery and seasonal driving increases, we expect continued strength in ethanol margins,” Bowe said. “Tight supplies are supporting ethanol prices and strong demand for coal products is beneficial to our business results. We continue to produce and sell new high-protein feed products for both Colwich, Kansas, and Denison, Iowa, plants at good margins.”
The Andersons have completed its spring maintenance at four of its ethanol plants, jointly owned with Marathon Petroleum. The fifth facility, Element LLC, is scheduled for a maintenance shutdown in mid-May.
“We are well positioned to capitalize on these improving margins in our efficient plant network,” Bowe said.
The Plant Nutrient segment had its best first quarter performance since 2008, recording a pretax profit of $8.5 million in the first quarter of 2021 compared to a loss of $1.2 million in the same period a year ago.
“This solid performance was the results of having well-positioned inventory in a period of strong demand,” Valentine said. “Margins per ton were significantly higher, and volumes increased approximately 18%. Each of our product lines had year-over-year gross profit improvement.”
Bowe expects continued strong performance from the Plant Nutrient segment.
“We expect the plant nutrient business to continue its strong performance, as they complete this year’s spring fertilizer application season,” Bowe said. “With increased farmer income, demand for conventional and specialty AG inputs is strong.”
The Rail segment also performed well in the first quarter of 2021 with a pretax income of $4.9 million, the segment’s best quarter since the fourth quarter of 2018.
“The year-over-year change was primarily driven by gains from scrapping older rail cars at high scrap values, as well as some credit recoveries,” Valentine said.
Bowe indicated that the Rail segment is potentially rebounding in the industry.
“We believe we are past the low point in rail car demand and sequential lease rates have improved, recovery in the industry to remains slow,” Bowe said. “Continuing strength and scrap steel prices, whilst the scrap rail cars where it makes economic sense, but overall idle cars have declined in North America.”
Looking forward, Bowe is hopeful about the rest of the year.
“We are proud of our strong start to the year, and we're optimistic about our prospects for the rest of 2021,” Bowe said. “We believe opportunities will continue to be strong in the near term, particularly in the ag sector. Export demand has been robust, especially from China. The USDA is projecting this crop year’s Chinese imports of feed grains to exceed the previous record in the crop year of 2014-15. This demand continues to support world grain trade, and elevation margins remain strong. We also anticipate that the continued price rally will encourage planted acreage in excess of current USDA estimates.
“With a significant improvement in AG fundamentals, we’re very excited about our growth prospects this year and beyond. We are well positioned to support our customers while paying close attention to risk, as well as operating safely and efficiently.”