Sector News

Cargill buys soymeal from ADM

February 5, 2016
Food & Drink

(Reuters) – Cargill Inc has slowed the crush at its soybean processor in Indiana and instead bought soymeal from rival Archer Daniels Midland Co to ship railcars to feed markets in the southeastern United States, cash traders with knowledge of the deals said on Thursday.

Crush margins that measure the profitability of buying soybeans, then selling soymeal and soyoil have declined for months. Average margins CRUSH-1=R bottomed out at a 17-month low of 23 cents per bushel last month, before rebounding this week to 50 cents, seen by traders as a break-even point, Chicago Board of Trade data shows.

Cargill deemed it more profitable to buy soymeal from ADM to meet at least a portion of its trade commitments instead of boosting the crush at its Lafayette, Indiana, facility.

The companies declined to comment on the deals. A Cargill soymeal broker in the Indiana truck market said she was not buying any meal.

Cargill and ADM are two of the biggest U.S. agribusiness companies.

Minnesota-based Cargill bought dozens of soymeal railcars, each of which can hold roughly 100 tons, for shipment out of ADM’s processor in Frankfort, Indiana, according to four cash traders who deal with both companies.

The railcars were sold at prices even with CBOT March soymeal futures which have hovered between $267 and $275 per ton in recent weeks, the traders said. Futures are up from multiyear lows hit on Jan. 4.

“Cargill has been a steady buyer domestically,” a soymeal trader said of the deals which occurred during the past few weeks.

Cargill earlier this week also cut its bid to buy soybeans from farmers at Lafayette, changing the differential to a 5-cent discount from a 5-cent premium to CBOT March futures. Competitors in the area were bidding at a 3-cent or more premium to futures prices of $8.74-1/2 per bushel – a move likely to encourage farmers to sell elsewhere.

ADM, Bunge Ltd, Cargill and Louis Dreyfus Commodities each have a soy processor in northern Indiana, and typically compete for business to states including North Carolina and Georgia, where poultry and hog producers need massive volumes of soymeal and corn to raise their flocks and herds.

The companies already face lower export volumes of corn and soymeal due to larger global supplies. ADM this week cautioned that tough market conditions were likely to persist.

Processors crushed 157.711 million bushels in December, the smallest total for that month since 2011, according to the National Oilseed Processors Association.

By Michael Hirtzer (Additional reporting by Justin Madden in Chicago; Editing by Matthew Lewis)

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